A growing number of investors are being forced to sell their homes in order to pay off their interest-only mortgages, according to new research.

A fresh survey of 104 estate agents found that 43% have seen an increase in the volume of customers forced to sell their homes to pay off interest-only mortgage debts over the past two years.

The study revealed that mortgage debt issues are particularly affecting older customers trying to downsize to less expensive houses to release cash, with 73% of would-be downsizers paying off mortgages.

Last month, the Council of Mortgage Lenders (CML) revealed the number of residential interest-only mortgages outstanding had dropped to less than 2m – down from 3.2m in 2012. However, the research did not show how people were repaying their interest-only products – and the new data suggests that, for many people, the solution involves selling their home.

Interest-only mortgages, which only require borrowers to make monthly interest payments, rather than capital, were popular with homebuyers, especially investors, until the financial crisis. But many were left in danger of repossession because they did not have sound repayment plans in place. 

Five years ago, regulations were introduced preventing mortgages from being sold without a solid repayment plan, leading to a decline in their popularity.

Around 10,000 borrowers a year between now and 2020 will come to the end of interest- only loans, with either a projected shortfall from their repayment strategy or no strategy at all, and many will see equity release as a solution to their capital repayment deadline.

Will Hale, director at Key Partnerships, which conducted the research, said: “Selling up to pay off an interest-only mortgage can make financial sense but it is worrying if older homeowners are being forced to sell and are not aware of all their options.

“Equity release enables people to stay in their home and not have to downsize, or even in extreme cases lose their house. Some lenders are engaging with equity release as a solution and we would urge others to follow.”