"At the peak of the housing and mortgage market five years ago interest-only mortgages accounted for over one in every three new mortgages agreed by lenders.
“Although interest-only had been significantly higher through the 1990s, in those days lenders and borrowers were far more disciplined in terms of repayment vehicles.
“Typically a borrower took an investment such as an endowment alongside their mortgage and planned their own strategy to repay this debt at the end of the original term.
“Times change of course, as do house prices and lifestyle requirements.
“As house prices started to rise in earnest after the turn of the millennium many consumers found it increasingly hard to get onto the property ladder without taking reduced interest-only mortgage payments and likewise the gap on the ladder to move onto the next rung was often also so large that the subsequent new mortgage payments proved too tricky on a full repayment basis and so many relied either in part or entirely on interest-only to ease the pain as well as accommodate their housing needs.
“Along came the credit crunch, a deep recession and regulatory intervention and the rules changed again.
“We now see around one in ten to one in twenty new mortgages applied for on an interest-only basis, meaning capital repayment mortgages are now at their highest levels since the early 1970s.
“This appears to be the shape of things to come.
“We may in time see some sort of 'interest-only niche' open up, where certain lenders who are prepared to invest in processes to accommodate a slightly more flexible approach to interest-only may become more of the norm - it may be that some interest-only mortgages in the future are charged at higher rates than conventional repayment mortgages.
“What is clear is that interest-only is certainly not for everybody and it is good that there has been some adjustment downwards. However that adjustment has now swung too far and we would expect in time the market settles at slightly different levels.
“For now if you are a borrower, make yourself aware of the market changes, especially if you are on interest-only now. Speak to an independent intermediary as well as your existing lenders and assess your options for now and for the future.
“See if your mortgage conditions allow you to overpay each month if you can afford to do so - if you can, this will improve your overall position and start to create more equity in your home."
