The popularity of interest-only mortgages is a ticking time bomb for house buyers who are likely to see the bubble burst in the future.
This is the suggestion of Paul Holmes, chief executive officer at Firstrung – which aims to provide purchasing solutions to first-time buyers – who noted these products could serve to burden individuals with significant levels of debt because the value of property is unlikely to enjoy a marked rise.
Mr Holmes explained the industry does not like to talk about the issue, adding the word stagflation is very prevalent to the situation.
“We’re headed towards [a time] where property is not going to increase in value and people are going to be left with debt because they have got an interest-only mortgage,” the industry expert observed.
The average outstanding mortgage is currently around £130,000, meaning a repayment basis at a rate of five to six per cent would prove beyond the financial capabilities of most people.
Mr Holmes pointed out many individuals opted for interest-only mortgages when the property market was in fine health, believing house prices would continue to rise.
