What else you should know ?

What else you should know ?

Although millions of homeowners have interest only mortgages, many do not have any repayment vehicles in place to repay the amount borrowed. Many simply rely on rising house prices so that the value of their house will eventually be high enough to repay the debt. But as the credit crunch has shown, house prices don't always rise and in fact, many borrowers could instead end up in negative equity – where the amount they owe is greater than the value of their home.

This is worrying regulators and lenders and many now are demanding borrowers show they have a repayment plan in place before they will hand over can interest-only loan.

Not only this, but many lenders are tightening their acceptance criteria. The requirements range from having an income above £50,000 to owning/having a deposit of 50% or more of the property – this would mean you'd need a deposit of £50,000 to buy a £100,000 home.

What's more, some lenders are no longer accepting savings, including Isas, as a way to repay a mortgage. For other repayment plans, such as investments or pensions, some lenders will require the value of these investments to be extremely high. For example, you might need to have a pension fund of more than £1 million and only 25% of this fund can be used to repay your mortgage.

The trend is increasingly pointing towards the ultimate disappearance of such deals as lenders' concerns grow. It may be that in the future, only a select group of lenders may continue serving what is likely to become a niche market. As a result, more borrowers will be forced to take out a repayment mortgage instead. The Financial Services Authority (FSA) also wants borrowers to only be allowed to take out an interest-only mortgage if they can afford the equivalent payments on a repayment deal. Borrowers should be able to show they are saving to pay off the loan and not simply relying on rising house prices.