You are here: Home - Uncategorized -

Consumers cautioned on interest-only mortgages

Written by:

Experts have warned that homebuyers who took out interest-only mortgages as a way to get on the property ladder could pay more in the long run. Andrew Partridge reports.

The number of first-time buyers who have taken out interest-only mortgages has doubled since 2002, with many using the mortgages as a means to get on to the property ladder.

An interest-only mortgage is seen as a low-cost way to buy a first property by many, as your monthly mortgage payments are smaller because you only pay the interest. However, you should make additional payments into a separate investment vehicle in order to pay off the outstanding debt at the end of the term.

But with a 41% increase in house prices in the last four years, some people that have taken out interest-only mortgages hoping that increases in house prices will more than cover their investment.

However, while the lower monthly payments mean these types of mortgages can be tempting, warns consumers only to consider an interest-only product if they are disciplined enough to put extra money aside to repay the debt at the end of the term.

And if you intend to switch to repayment deal after a few years, as many borrows do, bear in mind the cost implications.’s research shows that the longer you remain on an interest-only mortgage, the larger the monthly payments will be when switching to a repayment mortgage.

Louise Cuming, head of mortgages at, said: “I would whole-heartedly urge consumers to think carefully before taking out an interest-only mortgage – even if they are attracted by the lower monthly payments.

“People should only consider this type of mortgage if they are sure they will be disciplined enough to save money elsewhere – as well as setting aside any additional lump sums of cash, like bonuses — and not touch it!

She added: “If you thinking of taking out an interest only mortgage and recognise that you will be financially stretched by this monthly payment, then I urge you to reconsider if now is the right time for you to buy at all.”

So you should ensure you consider the consequences of an interest-only mortgage over the long term, and you should think through what could happen if house prices stagnate, or even crash.

Related Posts


Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

ISAs: your back-to-basics guide for 2018/19

Here’s everything you need to know to make the most of your unused ISA allowance ahead of the 5 April deadli...

A guide to Sharia savings accounts

A number of Sharia savings products have upped their game in recent months, beating more familiar competitors ...

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
ID fraud warning

Two out of three Britons drastically underestimate the likelihood of becoming a victim of ID thieves, even though the vast...