Families `moved £60bn of mortgage debt to interest-only deals`

Around 300,000 households have switched more than £60bn of mortgage debt to interest-only deals in the last three years, according to new statistics from the Financial Services Authority (FSA).

With the average UK mortgage standing at £109,000, and average borrowing costs at 3.5%, households can save around £230 a month by making the switch from repayment to interest-only mortgages, according to The Telegraph.

During a time in which families are facing what Bank of England governor Mervyn King called `the most dramatic squeeze on personal finances since the 1920s`, cutting costs and budgeting effectively is more important than ever.

However, there are fears that many homeowners are switching to interest-only mortgages without considering how they`ll repay the capital - which could cause problems further down the line.

A spokesperson at debt management company Gregory Pennington said: "Some homeowners may be switching to an interest-only mortgage to help them deal with a short-term change in their financial circumstances, such as a reduction in income – which may be an appropriate temporary solution. However, switching to an interest only mortgage to help meet the costs of everyday commitments, such debt repayments, is unlikely to be an appropriate longer-term solution - because the capital portion of the mortgage will still have to be paid.

"Instead, struggling homeowners should seek advice from a debt adviser who can help them find more suitable ways of tackling their financial situation."