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Shut up about interest-only ‘problem’

If you talk an issue up enough it can eventually become a problem and that’s what I fear is going to happen to interest-only mortgages. For at least three years I’ve heard people describing them as a mis-selling scandal waiting to happen.

As a holder of an interest-only mortgage I have worried about this myself, but maybe it’s time to accept they have a vital role to play in the market and stop talking about them.

The latest warning comes from which looks at the difficulties consumers may face in the longer term if they take this option to buy their homes.

We’ve all heard of the downsides of interest-only – too few people have repayment vehicles in place and borrowers plan to switch to repayment mortgages at some point but the time never seems to be quite right.

But what alternative do many first-time buyers and people wanting to move to a bigger property have? Prices continue to rise and lenders are restricted by regulation as to what they can do to offer more innovative products. The recent hike in the base rate from 4.5% to 4.75% makes it even tougher for borrowers.

And the government is only scraping the surface of the affordability problem. Its key worker scheme has limited geographical coverage and is restrictive about which occupational groups can take advantage of it. (When is someone going to come up with a product specifically for us poor journalists?)

Even home owners who got on the property ladder at the right time, just before prices really took off at the start of the noughties, are finding it hard to take the next step.

A friend of mine bought a studio flat in Walthamstow in east London about five years ago for 60,000. She sold it this month for 120,000 so she’s made a tidy profit. But as a single person she’s finding it hard to find a new property she can afford. She’s looked in the suburbs of south London and could maybe stretch to another studio but that’s just a sideways step. Instead she’s decided to save the money she’s made and rent for a while to consider her options – or find a rich man.

Buying with friends is sometimes advanced as an option but it rarely works out like an episode of Friends or This Life, and once you get to a certain age do you want to feel like you still live in student digs?

There’s seems to be a mismatch between the trend in society for people to want to hold onto their independence for longer and the opportunities for people to buy on their own.

So while we should be aware of the potential problems of sticking with an interest-only deal for too long, it might be a good idea to stop trying to make interest-only into the next mis-selling scandal without the evidence to back this up.


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