Unbiased.com data shows 1.6m properties are simply paying off the interest each month and not repaying capital or saving anything towards paying off their mortgage debt in the future.
Karen Barrett, chief executive at unbiased.co.uk, says: “With incomes squeezed, it’s not surprising that many people are trying to save money by sticking to interest only mortgages, but this is a potential ticking time bomb”
Nearly all major lenders have clamped down on interest-only lending in the last month by reducing LTVs and tightening criteria.
The Financial Services Authority is also turning the screw on interest-only deals without repayment vehicles in its Mortgage Market Review although it has come under fire from the Treasury Select Committed for failing to tackle the interest-only time bomb.
There are signs that claims firms are also ready to pounce on any misselling scandal surrounding interest-only mortgages.