Over half of UK homes are being funded by interest-only mortgages, most of which are backed by endowment policies.
The Survey of English Housing, a survey of 20,000 households a year conducted by the National Centre for Social Research, revealed in 2000-2001, 53% of homes were bought with an interest-only mortgage. This is down from 58% the previous year.
But Council of Mortgage Lenders figures for the last quarter of 2001 confirm these products are now being sold less frequently. Three-quarters of all mortgages were standard repayment, 10% were endowments, 1% were pension-backed, 11% were pure interest-only and ‘others’ made up the last 3% of sales.
Nick Baxter, director of Mortgage Promotions, said the endowment-backed interest-only mortgage is a thing of the past: ‘I can’t see endowment mortgages coming back. They were popular in high interest rate periods when there was high market growth, and neither factor is predicted to return in the short term. But interest-only mortgages are becoming more popular, particularly with the development of flexible mortgages. A repayment mortgage is quite restrictive in that you have to overpay on the interest by a fixed amount in order to redeem the loan at the end of the term. With an interest-only flexible mortgage you choose the amount you overpay each month, turning it into a repayment mortgage on your own terms.’
He added: ‘Those happy with their endowments are those who took them in the early 80s and maybe given the time they have had them, they are not thinking of moving. So the overall percentage of endowment-backed mortgages will fall slowly.’
The survey also found 70% of households in England owned their own home, 20% rent from the social sector, either councils or Registered Social Landlords/ Housing Association, and 10% rent privately. Almost 40% of all owners, around a quarter of all households, own their homes outright. Around 95% of these owners were over 45 and 63% retired.