Interest Only Making a Come Back

In the year and a half before the introduction of the Mortgage Market Review (MMR), several lenders tightened their interest-only criteria, whilst others, including Nationwide, NatWest and Coventry Building Society, withdrew from the market altogether.

With an interest-only mortgage, as the name implies, your monthly repayments only go towards paying off the interest on your mortgage, and the borrower must make other arrangements to pay off the capital at the end of the loan period.

With market conditions now easing, interest-only mortgages are making a comeback to the residential mortgage market. Lenders such as Leeds Building Society are offering an interest-only mortgage, with three introductory deals. These come with rigorous conditions, for example a minimum 50% deposit. Clydesdale Bank on the other hand are offering interest-only residential mortgages to “high-net worth” customers with a minimum 25% deposit.

Melton Mowbray Building Society and Santander are among others still active in this specialised market, with the likes of NatWest still yet to confirm their intention to return to the sector.

The industry now accepts lenders can offer interest-only mortgages only if there is a credible strategy for repaying the capital. Borrowers will now be scrutinised, facing questions on their income as well as spending to assess affordability and whether they can adapt during periods of change. For example being unable to work or rising interest rates, which is widely predicted for the latter part the year.

In short, interest-only can be considered an acceptable means of lending, provided a sensible and robust payback method is firmly in place and a higher than usual deposit is available.

If you are looking to get onto the property ladder and wish to take the interest-only route, then it is highly recommended to weigh up the pros and cons before you make that all important financial decision. As such, seeking impartial mortgage advice could not be more vital in guiding you through all the options as well in assessing affordability. Such a course of action, will give you that all important peace of mind, should any periods of uncertainty arise.

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