A new research study published today by insurance, pensions and investment group LV= reveals a worrying 'mortgage gap'. Nearly half of the UK's 2.9 million interest-only mortgages have no specified investment vehicle in place to pay off the capital on the loan.

Borrowers have not been obliged to have an investment plan linked to their interest only mortgage since the early 1990s.

The research, conducted for LV=, formerly known as Liverpool Victoria, by CEBR, shows that the vast majority of the £74 billion in loans that have no specified capital payment plan, were issued to borrowers in the last five years.

Four in ten (41%) of the interest only borrowers who have no capital payment plans - equivalent to around 530,000 people with £30 billion in loans - are relying on selling their home and using the proceeds to pay off their mortgage. However, with recent falls in property prices and further declines predicted, this strategy may be blocked for many people in the short to medium term.


Only one in five (21%) plan to use other investments, not linked to their mortgage, to pay off the mortgage capital at the end of the term.

Mike Rogers, LV= Group Chief Executive said: "A previously booming property market led many people to bank on being able sell their home, use the proceeds to pay off the mortgage, and still have enough left to buy another home. However, this strategy may have been overturned by current and predicted future falls in property prices. These people should therefore seriously consider investing as much as they can now, and regularly, to help pay off the mortgage capital at the end of the term.

"We're concerned that so many of the homeowners we polled appear to have an over-optimistic outlook on their ability to pay off their mortgage capital at the end of the term. Or worse still they are turning a blind eye to the issue."

(CD/JM)