Many interest-only mortgage borrowers, including a significant proportion of buy-to-let landlords, have no plan in place to repay the capital when the loan term expires, according to fresh research.
A number of homeowners still have interest-only mortgages, with the study by credit ratings giant S&P revealing that 36% of borrowers with loans due to mature between January 2016 and June this year failed to pay off the capital lump sum required at the end of the mortgage term.
Interest-only deals were once extremely popular, accounting for one in three loans in 2007. But many experts argue that it is the legacy of years of irresponsible lending by banks that led so many homeowners into a position whereby they now cannot repay their debt.
The research found that 27.5% were owner-occupiers while 8.5% were buy-to-let mortgage borrowers.
Regulatory clampdown has now made it more difficult for homebuyers to get interest-only home loans, while lenders have been actively tackling the issue head-on by proactively contacting interest-only borrowers and exploring options where there may be difficulties in repaying the loan.
Consequently, the number of borrowers awarded interest-only deals has fallen sharply. Last year, banks approved around 8,300 interest-only mortgages, which is significantly lower than the 332,000 or so interest-only mortgages approved in 2007.
Of the 1.9 million or so people with interest-only mortgages, a significant chunk are expected to have no way of repaying the money when the term ends.