Next month's rate increases are likely to mean bad news for many homeowners with interest-only mortgages.
Such mortgages allow borrowers to pay off the capital only when the mortgage term ends, meaning they can maximise their borrowing capacity, but a host of lenders recently cut the amount that can be borrowed on an interest-only mortgage to just half of the property's value.
And, as lending rules tighten, mortgage adviser John Charcol's senior technical manager Ray Boulger says that those on interest-only mortgages may have no other option but to negotiate another deal with their existing lender when their current one expires.
He insists that people with this type of mortgage, which includes many currently retirement planning, will be "in the most difficult position" and there are an estimated 1.5 million such loans worth around £120 billion due for repayment in the next decade.
Consequently, experts are predicting that the interest-only mortgage will soon become 'niche', with deals only offered to those who can clearly display their ability to repay the capital.
The trend towards the interest-only mortgage gathered pace during the last property price boom and peaked in 2007, when they accounted for a third of all mortgage sales.
