According to new research from Liverpool Victoria (LV=), approximately 1.3 million interest-only mortgages do not have an investment vehicle set up to pay off their mortgage.

These statistics are worrying as it shows that around £75 billion in mortgage lending is outstanding in loans without any method or plan for repaying them.

According to LV=, most of these mortgages that do not have a repayment plan have been started in the last 5 years.  It was only in the early 1990s that it has not been compulsory to set up an investment plan in order to pay off the mortgage amount.  As these mortgages have commenced in the last 5 years, the chances are that these were also taken out at a time when property was at its highest peak and many of these people are likely to be struggling with their repayments now.

The study showed that around 40 percent of borrowers expect the sale of their home to repay the mortgage, however, as recent times have shown, this could be a risky strategy and in fact 13 percent of the survey respondents believed they are already in negative equity so owe more on their home than it is worth and yet another 10 percent said they not sure.

LV= Group chief executive, Mike Rogers, commented:

“A previously booming property market led many people to bank on being able to sell their home, use the proceeds to pay off the mortgage, and still have enough left to buy another home.

“However, this strategy may have been overturned by current and predicted future falls in property prices. These people should therefore seriously consider investing as much as they can now, and regularly, to help pay off the mortgage capital at the end of the term.

“Providing for those things that matter most in life has undoubtedly got a lot harder in recent months and the current economic outlook will be making many families anxious. However, a little financial planning now could make a real difference down the line.  We urge interest only borrowers with no firm capital payment plans to review their options, save as they can regularly, and seek professional advice early if needed.”

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