Lenders revitalise interest-only mortgage market to meet borrower needs

 

After the financial crisis, interest-only mortgages became a rarity with borrowers having to prove how they would pay off their loans, but things have now begun to change.

Under the scrutiny of the Financial Conduct Authority (FCA), lenders seemed to abandon the controversial interest-only market, as reports of “mortgage prisoners” indicated that borrowers trapped on expensive, interest-only deals, unable to remortgage, were the worst affected.

But the recent trend away from interest-only mortgages is being redressed, as lenders recognise that for some borrowers interest-only is a viable option and are keen to develop these niche markets.

Number of lenders offering interest-only has tripled

Moneyfacts data shows that the number of lenders offering interest-only loans has increased to 33, almost three times the number available in 2012. Largely driven, it seems, by the mutual sector, Hinckley & Rugby Building Society, Hanley Economic Building Society, Leek United Building Society and Accord (part of the Yorkshire Building Society) have all entered the market with interest-only products.

Specialist lender Masthaven has also introduced interest-only products to its range, and mainstream banks HSBC, Barclays, Santander and Natwest all offer interest-only products.

Increasing customer demand

Ishaan Malhi, of online mortgage broker Trussle, said: “We’ve seen an increase in the demand for interest-only mortgages, due to lifestyle changes, equity releases and niche customer situations.”

Indications are that interest-only mortgages are no longer restricted to borrowers with high incomes or significant equity. The FCA’s relaxation of the regulations around retirement mortgages in March means that there has been a surge in retirement interest-only (RIO) mortgages. Not only do RIO mortgages solve the problem of existing interest-only borrowers coming to the end of their mortgage term with no way of repaying their loan, they also provide a viable alternative option for releasing equity in retirement.

However, interest-only mortgages for homeowners not looking for an RIO mortgage will need to have either significant equity or a high salary, or both. Natwest requests a minimum income of £75,000 and minimum equity of £200,000 in the property being borrowed against, whilst HSBC asks for a minimum sole salary of £100,000. Santander and Metro Bank have no income requirements but do have stricter lending criteria to meet.

Have an exit strategy in place

With an RIO mortgage where the property is sold to repay the loan when the borrower enters care, sells or dies, interest-only borrowers will need to show a strategy for paying off the mortgage at the end of its term.

The good news is that lenders, to avoid future interest-only “mortgage prisoners”, are taking an active interest in how the mortgage will be repaid and ensuring borrowers fully understand the implications of an interest-only loan.

Highgrove Mews

High Net Yield Freehold Houses

  • Commutable to London (27 mins to central Paddington station)
  • Rental demand extremely strong with large industry presence in Reading
  • Freehold with 4% net yield

£284,955 - £457,000

St Petersgate – Stockport Manchester

New Launch - Stockport Manchester, apartments from £160,000

  • Discounted launch prices from £160,000
  • Excellent transport links with 3 trains per hour to London Euston and only 9 mins journey to Manchester Piccadilly
  • Experienced development team

Assured Rent Housing Association Leases

Assured Rent Housing Association Leases

  • Assured rent & no rental voids
  • Tenant damage cover & newly refurbished inline with requirements of a corporate sitting tenant
  • Free property and lettings management

From £62,000

Emerging Birmingham Commuter Town With Properties From Just £104,000

The emerging Birmingham commuter town where properties are selling in an average of just 24 days

  • A collection of 62 two bedroom apartments and 28 one bedroom apartments.
  • DE14 is one of the fastest selling postcodes in the West Midlands.
  • 23 minute train journey into Birmingham New Street Station.

Properties from £104,000

Mill, Stockport

The Northwest's emerging property hotspot

  • Discounted off-plan 2-bed prices from £162,000
  • Completion date - Q4 2021
  • Rental yields - 6% plus

Discounted off-plan 2-bed prices from £162,000

South Central – Birmingham City Centre Apartments

Highly anticipated 28 storey launch in Birmingham City Centre with an impressive roof garden and communal facilities.

  • 154 units across 28 storeys
  • Residential multi-media community room, gym, roof garden and sky cinema
  • Excellent future connectivity via the metro system to other key transport hubs and locations around the city

from £205,800

ba-

Talk to us

Speak to our UK property experts today: 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

+852 9865 4446

Open from 9am-6pm HKT

Stamp Duty Calculator

.

Unlock members only investment opportunities and full development details. Join now – it’s free, quick and easy.

Login

Not a member? Sign up for free

mortgage

Lenders revitalise interest-only mortgage market to meet borrower needs

Example

By submitting your details via this online form you agree to be contacted via email/phone/SMS by Direct Marketplace Ltd t/a BuyAssociation in relation to property investment and property developments . We do not share your personal details with third parties.  To view our full Privacy Policy click here.