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Interest-only mortgages may suit young professionals
1 April 2008 10:30
The suitability of an interest-only mortgage depends on the individual's circumstances but they can prove especially desirable to young professionals, according to one broker.
Latest Council of Mortgage Lenders data indicates that the proportion of first-time buyers (FTBs) with an interest-only deal and no specified repayment vehicle rose from 16 per cent in 2006 to 20 per cent last year.
However, Alexander Hall's chief operations officer Andy Pratt remains unperturbed by the state of the market and noted that this option can be particularly appropriate for young professionals who can rely on earning a higher salary a few years later on.
He argued that growing demand for interest-only products was the result of a 'cultural change' whereby borrowers feel confident enough to pay off the loan in lump sums when it suits them, giving them a greater sense of control over the situation.
Yet Mr Pratt also asserted that falling house prices could bring an end to this trend, suggesting that a 20 per cent drop would deter small investors, homeowners and FTBs from taking out interest-only mortgages for fear of ending up with negative equity.
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