Research by Ocean Finance found 69% of borrowers with interest-only mortgages don’t have a repayment policy in place. A further 22% believe they were not given adequate mortgage advice.
Just 31% of those interest-only borrowers questioned said they have a separate investment policy in place, such as an endowment or an ISA, to repay the capital.
While 16% said they plan to switch to a repayment mortgage before their current loan ends, 31% said they expect to have to sell their home to settle the outstanding debt.
Ocean spokesperson Gareth Shilton said: “Interest-only has become a time bomb because so many people took out the products to cut the cost of their mortgage, with no view of how they would repay the capital element. Borrowers who have an interest-only mortgage with no repayment plan need to take action.
“It’s advisable to seek advice on whether they can overpay on their current interest-only deal, switch to a repayment mortgage, or use an ISA or pension to settle the capital payment.”
Shilton added: “Interest-only mortgages are now typically only being approved for borrowers who can demonstrate they have a repayment vehicle or pension pot that is forecast to repay the capital element. Usually, borrowers also need to have a significant deposit that gives them a big equity gap.”