Hybrid mortgages combining capital and interest-only repayments are set to grow in popularity. According to lenders, more borrowers are using them as a means of addressing endowment shortfalls.
By combining both capital and interest repayments under one umbrella, consumers do not have to surrender their endowment policy.
Allen Bruce, marketing manager of UCB, said: ‘These mortgages are becoming more popular. Last month, there were almost six million underperforming endowments. Borrowers need to look at their mortgage situation and decide whether to invest more in their endowment policy or look at the alternatives. If you switch to a standard mortgage, your endowment would be redundant where as with part and part mortgages, you can continue to use the endowment.’
Alan Long, head of marketing at Britannia, agreed: ‘Lenders are becoming more inventive, splitting their mortgages into different packages. In view of endowments, it is a good idea in the current economic climate.’
Bristol & West (B&W) offers these hybrid mortgages and has seen an influx in demand for this type of product.
Debbie Staveley, spokesperson for B&W, said: ‘Business on part and part mortgages has increased due to endowment shortfalls.’
However, hybrid mortgage products could provide problems for advisers, as more complex advice is needed.
Rob Clifford, managing director of Mortgageforce, said: ‘It is more difficult to advise on hybrid products. According to the Mortgage Code Compliance Board, 40% of registered advisers are not regulated by the Financial Services Authority so they are not qualified to recommend whether a client keeps an endowment policy or cashes it in. It is difficult for advisers to advise in a biased way and part and part mortgages make the advisory landscape more complicated.’
Advisers need to highlight the payment credentials to consumers wishing to take out a hybrid mortgage, according to Long: ‘More advice is needed as hybrid products are more complex. Borrowers need to be more aware it is not just one payment going out.