The Financial Services Authority (FSA) has warned that those approaching retirement could be facing a "ticking time bomb" with no way of repaying their interest only mortgages.
Martin Wheatley, Director of the FSA and Chief Executive of the planned Financial Conduct Authority, told the Treasury Select Committee a there is a "time bomb that has been created over the last twenty years and what we [the FSA] are trying to do is make sure that time bomb does not get any worse."
Of the 11.2million mortgages in the UK, around 40% are of the interest-only variety. The FSA said that around 150,000 interest only mortgages will be due for repayment over the next decade, and around 8 in 10 interest-only mortgage holders have no repayment strategy.
Interest-only mortgages employ a repayment strategy under which only interest on the mortgage loan is paid. The loan itself becomes payable at the end of the term if no action is taken.
A spokesperson for the Council For Mortgage Lenders said:"Lenders are attuned to this issue and will treat borrowers sympathetically"