More than 40 per cent of mortgage advisers surveyed by research company Opinium said they had seen a rise in enquiries from homeowners who wanted an interest-only deal.
The top three reasons cited for the growth in demand were to lower monthly costs (57 per cent), because borrowers were struggling with their current mortgage payments and to keep their monthly housing costs low (both 41 per cent).
Similar research conducted by Opinium among consumers found that one in seven would consider taking out an interest-only mortgage in the future.
Advisers say they are concerned that borrowers are not considering the long-term risks involved in taking out an interest-only mortgage but are instead thinking only of the short-term benefits. Concerns were also raised about borrowers falling into difficulty if their repayment plan underperformed and paying back more interest over the long term.
‘Clients do not understand interest-only risks’
Alexa Nightingale, head of financial services research at Opinium, said: “In today’s challenging economic times, it is perhaps not surprising that interest-only mortgages are more on the radar of homeowners, particularly as they offer lower initial monthly payments and cash flow flexibility. Despite the appeal, it is important to note that not everyone will be eligible for an interest-only mortgage and can be tricky to qualify for.
“On top of this, there is a concern among mortgage advisers that clients do not fully understand the risks involved in taking out an interest-only mortgage, but rather they seem to be interested in the short term benefits this type of mortgage deal can offer, as opposed to considering the potential longer-term risks. As such, it is important for advisers to ensure they are covering all bases in conversations with clients so that they can make well informed decisions.”
