FSA warns on interest-only risk

Posted: 15 Dec 2006 10:25:59 GMT

Would-be homeowners need to have a water-tight repayment plan before they consider taking an interest-only mortgage, the Financial Services Authority (FSA) has warned

Would-be homeowners need to have a water-tight repayment plan before they consider taking an interest-only mortgage, the Financial Services Authority (FSA) has warned.

Research for the agency has shown that despite high awareness about how the mortgages work, as many as ten per cent of consumers taking them don't have repayment plans.

A further five per cent of interest-only buyers said that they had repayment plans but the FSA challenged how credible these plans actually were.

"There is nothing wrong with interest-only mortgages," said Clive Briault of the FSA.

"However, consumers must be very clear about how they are going to repay the loans they take out.

"Consumers' repayment plans need to be realistic and robust. Consumers should not, for example, assume that house prices will continue to rise at the rate seen in recent years."

Bridging the affordability gap was given by home-owners as the main reason for taking an interest-only deal.

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