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Interest-only on rise again making repayment strategy key – Bartle

by: Matt Bartle, director of products at Leeds Building Society
  • 28/08/2019
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Interest-only on rise again making repayment strategy key – Bartle
Lenders have made a lot of effort in recent years to engage with existing interest-only borrowers to ensure their repayment vehicles are still fit for purpose.

 

And while this proactive exercise has been successful, the industry understands there are more interest-only borrowers who need support and would benefit from reviewing their plans ahead of their mortgages maturing.

The shrinking number of back book customers across the sector should not make brokers forget another peak of interest-only maturities is forecast for about 10 years’ time.

Unlike other lenders, we never withdrew from the interest-only market but as others have returned, product availability has increased significantly.

In addition, existing interest-only borrowers wanting to remortgage have benefitted from:

  • Historically low interest rates over the past few years;
  • Equity growth thanks to rising property prices; and
  • A voluntary industry code, introduced after the Financial Conduct Authority’s interim Mortgage Market Study, to help longstanding borrowers unable to move to an alternative product due to stricter mortgage affordability criteria. We were among its first signatories at launch last summer.

 

New deal benefits

So investigating whether a new deal would offer savings, or speed up repayment, is worthwhile.

Interest-only mortgages may be tainted for some by past bad experiences, such as endowment shortfalls.

However, interest-only can no longer be used as a way of accessing a larger loan than would be available on a capital and interest basis, and both mortgage types now are assessed for affordability in the same way.

Borrower activity we’ve been seeing supports the view that today’s interest-only homeowners are taking a more active approach to managing their mortgage, including remortgaging to bring down their capital.

 

Part and part solution

Part and part can help with this, particularly where a borrower has made little or no progress in reducing the original loan size.

In those circumstances part and part can minimise the payment shock resulting from switching straight to a repayment mortgage.

For example we lend up to 75 per cent loan to value part and part, of which up to 60 per cent can be on interest-only and the remainder on capital and interest.

That said, many borrowers remain unaware of part and part or unclear how it can benefit them, which is where an intermediary can help by finding the best deal for their individual needs.

As is always true, any borrowers concerned about mortgage payment difficulties should talk to their lender straight away – responsible lenders are focused on working with borrowers to reach a solution.

A broker could help these borrowers explore all their options should they wish to remortgage to a new deal.

 

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