article: Not that long ago, lenders made it easy for people in their early 20s to climb onto the nearest ladder by offering interest-only mortgages. As house prices rose year after year, homes looked like a solid investment. There appeared to be little danger of buyers slipping down to where they started. Then the financial crisis hit, the board became a seething mass of snakes, and the property market did not seem as easy to play after all. So, how has the game changed now, and what is facing those who fell back to having to start all over again? With an interest-only mortgage, householders pay off the interest on the loan but not the capital. At the end of the mortgage term, borrowers are expected to repay the capital. The attraction of interest-only mortgages was obvious to many young first-time buyers. Many were aged in their early 20s, had just started their first job, and were happy to put off any real consideration of how they would pay the loan back, or to rely solely on the rising value of their home. In addition, they were cheaper than the repayment option. But, as they became more and more popular, this type of mortgage was placed more frequently under the microscope of the City regulator - the Financial Services Authority (FSA). In 2006, when 24% of all new mortgages were lent on an interest-only basis, the FSA said most people with interest-only mortgages did not have "robust plans" to repay them "There is nothing wrong with interest-only mortgages," said Clive Briault, of the FSA, six years ago. "However, consumers must be very clear about how they are going to repay the loans they take out." That comment may sound familiar because just a few weeks ago, Martin Wheatley, the managing director of the FSA said almost exactly the same thing. "There is a place for interest-only," he told a mortgage industry conference. "Lenders must ensure these mortgages are taken out by consumers with a concrete repayment plan." The fears may not have changed, but the market for interest-only mortgages certainly has. In the last week or so, RBS, NatWest and the Coventry Building Society have pulled out of the market altogether. They followed a withdrawal in October by the UK's biggest building society, the Nationwide. "Whether this is the ultimate final nail in the coffin remains to be seen, but it does look increasingly like interest only is destined to survive only as a niche product or the preserve of the wealthy through the private banking fraternity," said Andrew Montlake, director at mortgage broker Coreco. The only lender to ease its stance is Santander which, after cutting back sharply on interest-only, is now allowing a mix of interest-only and repayment under a new deal. The FSA would be pleased to see interest-only disappearing for good as a mainstream product, but that is not a view shared by everyone. Source: Moody's Investors Service Jonathan Harris, director of mortgage broker Anderson Harris, said: "Interest-only is increasingly becoming a niche product, the preserve of wealthier borrowers.
summary: In the game of snakes and property ladders, winning now looks a lot more difficult for young buyers.