Actively - Homeowners 'Must Be Active In Avoiding Monetary Pressures'

Homeowners need to take steps to reduce pressure on their finances, an industry expert reports.

Pointing towards the Bank of England's recently released inflation report, David Kuo, head of personal finance at the Motley Fool, claims that the institution's warning that credit conditions are set to tighten "should set alarms ringing". And although many vulnerable first-time buyers, particularly those on interest-only mortgages, might wish to "hit the snooze button", they were urged should take the time to act now before they come under unmanageable monetary strain.

Citing a recent study by the Council of Mortgage Lenders, Mr Kuo pointed out that just over a quarter (28 per cent) of home loans taken out by those making their first steps on the property ladder during 2006 were interest-only mortgages. Such a figure, he claimed, is double the number of such products chosen in 2002. In addition, it was revealed that levels of first-time buyers applying for repayment mortgages fell from 88 per cent to 67 per cent in the five years leading up to 2006.

Those looking to get to grips with their finances, however, might wish to consider applying for a cheap low-rate loan now to help supplement their spending.

Commenting on the figures, he said: "The shift to interest-only mortgages is not unexpected, given the increasingly onerous cost of buying a first home. However, first-time buyers who have made this choice should try to reduce the size of their loan quickly. In future, lenders may tighten the credit-scoring criteria and choose to reduce the maximum loan-to-value. This will put borrowers who have taken out 90 per cent mortgages at risk, especially if the value of their homes decline sharply when they remortgage."

Mr Kuo added that one way in which homeowners could lessen the fiscal pressures which they come under in the months and years to come is to make extra payments on their mortgage now. It was suggested that the majority of money lenders will allow their customers, even ones with interest-only mortgages, to make overpayments. He pointed out that every time homeowners contribute 1,000 pounds above the minimum requirements, they will not only reduce their loan payments by this amount but will cut the amount of interest payable over a 25-year period by some 1,500 pounds.

Homeowners concerned about their capacity to make mortgage payments, however, may wish to take out a cheap loan now before credit conditions worsen further. Although this may represent an additional demand on their finances, by using a loan for consolidation purposes borrowers may be able to pay off a number of spending commitments quickly and effectively. This could leave them with more disposable income each month, which could allow them to make payments with greater ease.

And for people worried that they may miss making a mortgage repayment, a loan might be of great assistance. Recent research by price comparison website moneysupermarket indicated that those homeowners who are unable to meet such a demand, or find that they have a direct debit or cheques payment returned, could face fines of up to 50 pounds.