Interest only mortgages affected by price falls

According to recent reports many people that have interest only mortgages are being adversely affected by the fall in house prices that have been ongoing for the past year. Officials have said that many of those with interest only mortgages have not been able to put the necessary money aside to fund the payment of their principal loan balance and this could pose a huge problem.

Experts have said that many people that have interest only mortgages have been relying on rising equity levels in their homes to try and repay the principal loan balance. However, with house prices falling equity levels in property have also plummeted and this has resulted in those relying on this source of income having to think again.

One industry expert stated: ‘A previously booming property market led many people to bank on being able to sell their home, use the proceeds to pay off the mortgage and still have enough left to buy another home. ‘However this strategy may have been overturned by current and predicted future falls in property prices.’

In addition it has been revealed by the Council of Mortgage Lenders that many of those that decide to take out interest only mortgages do not take out any adequate sideline investment that will enable them to repay the principal loan minus the interest at the end of the loan term.