CML shatters interest-only mortgage myths

Interest-only mortgage borrowers are no less equipped to repay their home loans than homeowners with capital and interest mortgages, a new report shows.

Conducted by the Council of Mortgage Lenders (CML), the research shatters the apparent misconception that interest-only products are forcing ill-equipped buyers into unassailable debt.

Mortgage deals that only require the borrower to repay the loan interest each month, rather than a percentage of the capital, have been touted as threatening products for inexperienced homebuyers, who lack long-term financial planning or the means to repay.

But not according to the CML, which insists that the loans are ideal for the self-employed or contract workers with uneven income streams.

Borrowers with interest-only mortgages are typically saddled with similar or lower loan to income multiples, the research reveals, and fewer first-time buyers opt for the mortgage type than remortgaging customers.

"The view that interest-only mortgages are being used as a dangerous short-cut around affordability barriers is not borne out by our research," commented CML director general Michael Coogan.

The Financial Services Authority is investigating the potential dangers of interest-only mortgages and will publish its findings next month.