Buyers 'should opt for repayment mortgages'

Struggling first-time buyers should opt for repayment mortgages rather than interest-only products when considering high loan-to-value deals in order to minimise the risk of negative equity, it has been advised.

Fool.co.uk has said that five per cent of first-time buyers may be unable to sell their homes if prices continue the downwards trend that the latest Halifax house price index indicates that they are now taking.

Buyers who take out 100 per cent mortgages on interest-only repayment schemes are particularly dependent on rising prices and could be locked into their current properties for much longer as a result because the amount they owe would be more than the value of their home.

"Borrowers on 100 per cent mortgages need to be aware that stagnant house prices may keep them shackled to their uncompetitive lender and prisoners in their own home until house prices rise again," advised Fool.co.uk head of personal finance David Kuo.

“However, they can tip the scale in their favour by ensuring that they choose repayment mortgages rather than the cheaper interest-only options.

"They should also overpay their mortgage as often as they can afford. This will ensure that they are regularly chipping away at their debt," Mr Kuo added.

More Britons are opting for variable-rate mortgages as confidence over interest rates begins to return, Spicerhaart Financial Services noted last week.

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