Between 2005 and 2009 more than one million homeowners obtained interest only loans. The Financial Services Authority (FSA) is worried that these homeowners are putting off considering their position with their loans and will face hardships ahead. The FSA wants owners to start planning now on how they will repay the capital.

"Borrowers need a plan to repay the capital that does not rely on house price inflation or unrealistic intentions to downsize to a smaller property at the end of the term."

The problem that is looming for interest only mortgage homeowners is that lenders are suspending interest only loans. This is due to the FSA pushing for regulation of lending practices that are geared toward helping consumers to stay out of financial problems now and in the future. Interest only loans are therefore becoming more scarce.

If they cannot obtain another interest only loan when they seek a remortgage then their only choice will be a remortgage with payment covering both interest and capital. This will of course increase payments.

Melanie Bien, a broker with Private Finance, says: "Borrowers are under increasing pressure to switch to a repayment loan. But the monthly cost of a repayment mortgage is far higher than interest-only, so if lenders stop offering interest-only options, borrowers may be unable to remortgage."

"This could mean going onto their lender’s standard variable rate (SVR), rather than remortgage to a fix or tracker which could become unaffordable when interest rates rise," she added.

It is expected that while some banks may not completely stop interest-only loans, they will make them more difficult to apply for.

The lenders are also putting more and more pressure on homeowners to leave their interest only loans behind. The FSA is reviewing whether tighter regulation is needed on interest only loans and will make a ruling early next year.