TENS of thousands of borrowers have taken out interest-only mortgages with no means of repaying their debt. And banks and building societies are resorting to ever more drastic measures to help stave off financial disaster, including controversial never-ending mortgages.

A decade of strong house-price growth has encouraged one in four borrowers to take out interest-only loans, where monthly repayments cover the interest to the lender but nothing goes towards repaying the capital, says the Council of Mortgage Lenders.

These mortgages can cut costs for first-time buyers and enable existing homeowners to move on to properties that would otherwise be out of their reach, because monthly repayments are lower.

However, lenders are growing increasingly concerned that many homebuyers are storing up trouble for the future because many have no means of repaying the original loan; borrowers are not usually required to have a repayment vehicle in place when they sign up.

Kent Reliance and Britannia building societies are writing to all their interest-only customers to remind them of the importance of having sufficient funds to repay the capital.

If they haven’t, Kent Reliance said last week, it would even consider allowing some borrowers to pass an unpaid mortgage to their children. The children would take on the debt, paying off the loan out of their own inheritance. Mike Lazenby, the society’s chief executive, said: “As long as we can be sure that the relatives won’t have a problem, we would consider it.”

This has raised the spectre of inter-generational mortgages, which became common in Japan in the 1990s when borrowers were saddled with record debts.

Research by Abbey reveals that one in three homeowners with an interest-only mortgage has no linked savings vehicle to pay off the capital. That is about one in every 12 borrowers.

Julia Harris at Moneyfacts, a research firm, said: “This could cause big problems in years to come. Borrowers may find they cannot afford to pay off the loan by the end of the term, leading possibly to mortgage defaults and, in the worst-case scenario, repossession.”

When house prices were soaring, many people who took out interest-only loans could rely on growth in the value of their property to clear the capital. But with house prices expected to be subdued over the next few years, some lenders believe radical action is now required.

Lenders will allow borrowers to extend their loan way beyond the typical 25-year term to 30, 40 or even 50 years if they cannot repay it over the standard period. But longer mortgages are controversial because borrowers end up shelling out more in interest and risk carrying bigger debts for longer.

A £100,000 interest-only mortgage at 5% would cost £125,000 in interest over 25 years, while the same mortgage over 40 years would cost £200,000 in interest.

Extending your interest-only mortgage will make no difference to your monthly repayments. With a repayment mortgage interest payments drop as you pay off the capital, but with an interest-only loan your capital remains the same and so does the interest on your repayments. Lenders offer it as an option to interest-only customers only so they have time to sort out an alternative.