Product category:
Mortgages / Housing
News Release from: Motley Fool | Subject: Mortgages
Edited by the Insidemoneytalk Editorial
Team on 15 February 2008
First-time buyers should take avoiding
action now
Fool.co.uk responds to the Bank of England's Quarterly Inflation Report
David Kuo, Head of Personal Finance at Fool.co.uk, says: "First-time buyers who have taken out interest-only mortgages should heed the warning by the Bank of England over tightening credit conditions[1] "In 2006, one in four home loans (28%) taken out by first-time buyers were interest-only mortgages[2]
This article was originally published on Insidemoneytalk on 27 Mar 2007 at 8.00am (UK)
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This is double the number of interest-only mortgages taken out in 2002.
Meanwhile the number of first-time buyers who took out repayment mortgages fell from 88% in 2002 to 67% in 2006.
"The shift to interest-only mortgages is not unexpected, given the increasingly onerous cost of buying a first home.
However, first-time buyers who have made this choice should try to reduce the size of their loan quickly.
"In future, lenders may tighten the credit-scoring criteria and choose to reduce the maximum loan to value (LTV).
This will put borrowers who have taken out 90% mortgages at risk, especially if the value of their homes decline sharply when they remortgage.
"However, most lenders will allow borrowers, even those on interest-only mortgages, to make overpayments.
And every £1,000 of overpayment will not only reduce the outstanding loan by the same amount, but also slash the interest bill by £1,500 over twenty-five years[3].
"The Bank of England's Inflation Report should set alarms ringing in the ears of vulnerable first-time buyers.
Borrowers can choose to hit the snooze button if they wish.
But a better idea is to get going and take action now before they get kicked out of bed by their lenders." [1].
Bank of England: Inflation Report - February 2008 (13 February 2008).
[2].
Council of Mortgage Lenders: Recent rate cuts should ease affordability into 2008 (12 February 2008).
[3].
£;1,000 at 6% interest = £60 per year.
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