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'Extra risk' with interest-only mortgages

Property buyers taking out an interest-only mortgage have been advised that choosing such a product can be something of a gamble.

According to advice firm Re-Financial Planning, people opting for interest-only home loans are taking on an "extra dimension of risk" in comparison to a capital repayment mortgage, as they are often banking on their house increasing in value significantly or receiving a large pay increase at work.

Director at the company David Higgins compared this type of product with the investment risks associated with the older style of endowment mortgage.

Mr Higgins advised people to transfer to a repayment mortgage as soon as possible, stating: "The ultimate advice is to switch it over to capital repayment - all of it or part of it.

"If you're doing part of it, when you can afford to, switch the rest over to capital repayment."

The number of mortgages taken out by first-time buyers fell by seven per cent from June to July this year, according to data from the Council of Mortgage Lenders. A personal loan can help with the cost of buying a home.

See how much you could borrow when you apply for a loan with Lombard Direct.

© Adfero Ltd

28/09/2007 16:22:40

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