Homeowners who enter into interest-only mortgages are being advised to ensure they have “realistic and robust” repayment plans.
According to new research from the Financial Services Authority (FSA), ten per cent of consumers with interest-only mortgages have only a rough idea of how they plan to pay the loan back.
And although five per cent said they knew how they would fund their repayments, the FSA found these strategies – such as switching to a different repayment package near retirement age – to be flawed.
“Consumers must be very clear about how they are going to repay the loans they take out,” said Clive Briault, managing director of Retail Markets at the FSA.
He added that borrowers should take the fluctuating housing market into consideration and “should not, for example, assume that house prices will continue to rise at the rate seen in recent years”.
The FSA, which regulates the financial services industry in order to help consumers achieve fair advice and deals, recommends that potential borrowers seek suitable advice when considering different types of mortgage products.
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