Are interest-free mortgages a bad idea?

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Are interest-free mortgages a bad idea?

Interest-free mortgages are often not the best idea for lenders to be offering, as these products are suitable for only a small niche of the market, it has been revealed.

Sue Anderson from the Council of Mortgage Lenders said only those homes that are impervious to price inflation should ever really be considered for this form of borrowing.

"The Financial Services Authority has made quite clear that lenders need to be very cautious about [interest-free offerings] in the future," she commented.

Indeed, it must be made clear that the property itself will be the method of repayment.

Ms Anderson told listeners to the BBC Money Box podcast this type of borrowing is really only ever suitable when an individual has an extremely high level of equity and it is feasible they will look to trade down to a smaller home in the future.

Gary Styles, strategy, risk and economics director at Hometrack, recently argued performance of the UK housing market over the coming months will determine the lending criteria for homebuyers as the year progresses.

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