Are interest-only mortgages making a comeback?  

Are interest-only mortgages making a comeback?  

Interest-only mortgages used to be all the rage with borrowers, until lenders deemed them too risky for the mass market and limited their offerings after the financial crash. However, research by Moneyfacts.co.uk seems to suggest that the tide might be turning.

Poor performing endowment policies were the reason behind a large number of borrowers finding themselves unable to repay their interest-only mortgage at the end of their mortgage term. As a result, interest-only mortgages disappeared as a mortgage choice for the wider market, as lenders considered the risk too high.

In May 2013, only 102 interest-only mortgages were available, but moneyfacts.co.uk has discovered that the number has almost doubled over the past six years. Today there are 193 interest-free mortgage products available to borrowers.

While this is still a relatively small proportion of the overall mortgage market (3.86%), it does seem to show a willingness by lenders to relax the rules when it comes to risk.

More products, but no increase in interest-only mortgage approvals

Interestingly, while the number of interest-only mortgages available has increased, there has been no marked rise in borrowers taking them up. Borrowers, it seems, remain cautious around the prospect of an interest-only mortgage after the highly publicised fall out of failed endowment policies leaving many without any means to repay their mortgage.

However, it is more likely that borrowers are put off by lender requirements to secure an interest-only mortgage today. Applicants are expected to present a viable and robust plan for repayment of the mortgage early in the application process for inspection by the lender. Jumping through hoops to pass stricter lending criteria and presenting a feasible repayment plan that will pass the scrutiny of the lender is likely to put many people off, when they coud choose a simpler course of action with a straight repayment mortgage.

Retirement interest-only make up 25% of the products available

44 of the 193 interest-only products available are retirement interest only mortgages aimed at borrowers approaching retirement with no means to repay their interest-only mortgage due to a failed investment or lack of planning.

The Financial Conduct Authority (FCA) stepped in and loosened the regulations, resulting in a greater choice of retirement interest-only products that will allow mature borrowers to pay only their monthly interest on their mortgage until they die or enter long term care, when the property is sold to repay the capital.

Interest-only mortgages may be back on the table, but it’s unlikely they will become the mortgage of choice again as both lenders and borrowers prioritise minimising risk.

 

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT