Over recent years, property prices have increased in excess of the rate of inflation. This has been good for existing property owners and in particular for property investors, but has made it increasingly difficult for first time buyers to get a foot on the property ladder.

One solution that some home buyers have employed is to take out Interest Only mortgages rather than the more traditional Capital Repayment mortgages. This article looks at the pros and cons of interest only mortgages and what the implications may be for borrowers.

The way that mortgages have traditionally worked is that the mortgage holder pays a monthly amount and part of this amount goes towards paying off the capital, whilst another part goes towards paying off the interest. This type of mortgage is called a Capital & Interest Repayment mortgage.

Interest-only mortgages work, as the name implies, by only requiring you to pay the monthly interest portion of the mortgage. What it doesn't do is pay off any of the capital sum, so if you took out a mortgage for 100,000, then the amount of mortgage that you will owe the bank will still be 100,000 at the end of the mortgage term. The idea, though, is that you will have another means of repaying that capital sum. This might be facilitated through an expected inheritance, or the sale of other property or assets, or by paying a regular sum into an investment vehicle (such as shares) and hoping that the return on the investment will subsequently pay off the capital sum.

There are also some people who take out an interest-only mortgage for the early years of their mortgage and then switch to a capital and repayment mortgage. This is an approach that is sometimes favoured by young professionals who expect to see their salaries significantly rise as they complete professional qualifications, and climb the career ladder. The assumption they are making is that they will be better placed in later years to invest large sums that will pay off the capital amount of the mortgage.

It's easy to see why interest only mortgages have been growing in popularity. It's very tempting to opt for a lower monthly payment now, compared to a capital and interest repayment mortgage. And, sometimes, it may be the only way that a person can actually afford to buy the house that they want.

There are, however, some quite significant downsides to interest-only mortgages. Firstly, whilst your mortgage monthly payments might be low in the initial years, you

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