Julian Knight: Interest-only mortgages – they're really not OK

Something like one in five mortgage holders in the UK are on interest-only deals, according to Moneysupermarket.com. Now that's more than I thought were on this type of mortgage. I always figured that it was one in seven or at most one in six but regardless, it's way too many. The take-up of interest-only deals was one of the most disturbing aspects of the boom. This is how it worked. Homebuyer talks to mortgage salesperson who explains that they can borrow some ridiculously high amount and still afford the repayments as long as they go for interest-only. The homebuyer is reassured that their property will be worth so much when it comes to sale time that it will dwarf any outstanding mortgage. Well, the past two years have given the lie to this.

Make no bones about it, an interest-only mortgage is almost always a terrible idea. Why on earth would you want to make mortgage payments for 25 years and then still owe what you borrowed in the first place? Time and again I have come across cases where people who shouldn't be touching an interest-only deal with a barge pole have been, for want of a better word, mis-sold. The worst cases involve people nearing retirement still on an interest-only mortgage – the only possible way they will be able to pay what they owe is to sell up. The only circumstances where it is advisable to go down the interest-only route is if you suffer a sudden drop in income and need to convert from repayment to interest-only for a short time while you get back on an even keel. Best advice? If you're on one of these interest-only mortgages and you can afford it, switch to a repayment loan as soon as you can.



Take the cash?

The saga of Aviva's reattribution scheme took another twist last week. So far, around three-quarters of policyholders have voted on whether or not they want to receive a payment of between £200 and £1,150 in return for giving up their claim on surplus assets held in the insurer's with-profits fund. Apparently, some 96 per cent of people who have voted have accepted the cash. Now the insurance giant has said it will extend the time limit for its offer to give the policyholders who haven't voted the chance to do so. The key is that only policyholders who cast a vote will be entitled to a payout, abstention means no cash. What's more, there is no guarantee that those who do abstain or vote "no" – thereby retaining their rights to a share of the fund's surplus assets – will get anything in the future. It's worth noting that during the two and half years that this deal has been hammered together the value of the fund's surplus assets has by some estimates halved. Understandably, most policyholders would like to take their cash – the bird in the hand argument. As for those who would rather take their chances, I have some sympathy for their mindset too. They may reckon that Aviva being so keen to get them to say "yes" could indicate that the surplus assets could be worth quite a bit more in the future, particularly as the recent market recovery is showing signs of having legs. But, whatever the reasoning, if you're a policyholder and you haven't voted then the best advice is to do so now.

Suggested Topics
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
PROMOTED VIDEO
News
i100This Instagram photo does not prove Russian army is in Ukraine
News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
Morrissey pictured in 2013
people
Sport
sportVan Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Life and Style
Martha Stewart wrote an opinion column for Time magazine this week titled “Why I Love My Drone”
lifeLifestyle guru Martha Stewart reveals she has flying robot... to take photos of her farm
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In grandfather's footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

    Martha Stewart has flying robot

    The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

    The dining car makes a comeback

    Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
    Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

    Gallery rage

    How are institutions tackling the discomfort of overcrowding this summer?
    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

    Eye on the prize

    Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
    Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

    Women's rugby

    Tamara Taylor adds fuel to the ire in quest to land World Cup
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices