57.6% of those with interest-only mortgages think house prices will rise enough for their debt not to be a problem at the end of the mortgage term according to research carried out for HML.
The research, conducted among more than 1,000 people, also revealed that only three out of 10 of borrowers with an interest-only mortgage are confident they have a plan that will repay the whole debt.
Three out of 10 homeowners have an interest-only debt: 16.5% of borrowers have an interest-only mortgage with a further 14.5% having a part interest-only and part repayment mortgage.
HML says that awareness of interest-only among borrowers is not an issue. Of the people who know they have an interest-only mortgage, 91.6% know they need to repay the capital at the end of the mortgage term.
A majority (59.7%) have a plan, 39.3% do not. Of those people who do have a plan only 47.2% are
confident the whole debt will be repaid. This means seven out of ten people with an interest-only mortgage need help to repay the capital at the end of the mortgage term.
The most popular repayment vehicle is an endowment policy (40.9%) followed by a PEP/ISA (19.4%), savings (10.3%) and inheritance (1.3%). More than one in ten (13.6%) say they will repay the debt through other means.
HML chief executive Andrew Jones said: “There is an unrealistic expectation amongst a significant number of interest-only borrowers that annual house price inflation will return to double digits and dig them out of a sticky situation.
“There is a challenge to help consumers understand there isn’t going to be a return to runaway house price rises anytime soon and it is therefore their responsibility, along with lenders, to make appropriate arrangements to address the issue.
“The financial services industry needs to get a grip on this issue quickly and proactively contact borrowers to find a solution that is workable. Providers also need to think about innovative ways of helping people stay in their homes. What is clear is that doing nothing is not an option.”
When asked if they could afford an increase in monthly mortgage payments, 42.9% of interest-only borrowers said they could not afford to pay any more towards their mortgage, 11.1% said they could afford an increase of less than £100 a month.
12.5% said they could afford to pay more than £100 extra a month and 29.6% said they could afford to pay significantly more towards their mortgage than they currently do.