You are here: Home - Better Business - Business Skills -

Lenders are increasingly flexible when tackling interest-only – Wilson

by: Stuart Wilson, managing partner at Later Life Academy
  • 05/02/2018
  • 0
Lenders are increasingly flexible when tackling interest-only – Wilson
The mere mention of endowment mortgages might deliver a little shudder of recognition about an issue which seemed to dominate the consumer finance agenda for a considerable length of time.

However, if we’re talking about long-term mortgage issues then I suspect interest-only mortgages are starting to get close to the longevity of endowments, in terms of a problem that needs constant addressing.

The nature of the pre-Credit Crunch market means we are still left with a preponderance of borrowers stuck on interest-only mortgages with either no capital repayment vehicle, a looming mortgage end-date, and little clue about what happens next, especially if the lender calls that capital in.

We also know from UK Finance figures that we have hundreds of thousands of borrowers with interest-only mortgages that stand at over 75% of the property’s value.

Whereas others with lower loan-to-value (LTVs) might be able to secure a 55-plus interest-only product, or utilise the equity release option, those with higher LTVs may not have that luxury. The question for them is, what happens next?

 

Lenders have responded

I read recently of broker research which suggested 74% of advisers think lenders should be a) more flexible with their interest-only borrowers, and b) should develop products specifically for those individuals.

This got me thinking, because all recent evidence seems to suggest that lenders have done both of these things, although some might argue whether they’ve been particularly quick at doing this.

Certainly, my understanding is that – up until now – larger, mainstream lenders with significant numbers of interest-only borrowers, have tackled this.

They looked at presenting ongoing product options but, where necessary, have either offered equity release options themselves where it might be suitable or linked-up with a provider in order to facilitate such options.

 

Retain good borrowers

Clearly, some advisers don’t believe enough is being done and that certain lenders are not willing to play ball in this area.

But I can’t help but think that there would be an overall reticence to call in a loan if the borrower was able to keep on paying, for example, into retirement, or could be offered an exit solution/product transfer at the end of the interest-only term.

The point we might be missing in this is that lenders want to retain good borrowers.

Yes, they need to make sure they meet their affordability measures but in a world where margin-producing sectors such as buy-to-let are not delivering as they once did, why wouldn’t a lender be willing to facilitate the next step for interest-only borrowers, especially if they can secure greater margin from them continuing to be a customer?

 

Flexibility is crucial

Lenders often get a tongue-lashing from the adviser fraternity – often for good reason – but we should not forget the complications that can arise from such situations, especially if the borrower might not qualify for equity release as they’re too young.

Flexibility here is crucial and, to my mind, lenders are willing to bend and lean somewhat to help borrowers.

They might not all do this but, when the option is losing the borrower, most are willing to move closer to a solution.

It might not be ideal, but the good news is that such product availability, options, extensions, and the like, are now much more prevalent than just a few years ago.

This interest-only problem will run and run but at least we do have a lender community engaged in providing solutions, even if not all borrowers can benefit from them.

There are 0 Comment(s)

You may also be interested in