With fears growing that many interest-only borrowers do not have capital repayment plans in place, Openwork, the UK’s third-largest mortgage introducer, has secured agreement that customers can convert interest-only deals to capital and interest payment loans with no fee penalty.
The lenders involved include Nationwide, Halifax, C&G, Scottish Widows, Lloyds TSB Scotland and Woolwich.
To help advisers highlight the move to clients, Openwork is offering pre-approved template letters outlining the consequences of not having a repayment vehicle in place and the benefits of repayment loans.
Paul Shearman, mortgage, protection and general insurance proposition director, Openwork, said: “At least 20% of UK borrowers have an interest-only mortgage and FSA figures show the vast majority of them do not have a suitable repayment vehicle in place to pay the total outstanding debt. That is a huge concern to borrowers and lenders alike.
“The most common reason clients opt for interest only is affordability, but is it really the cheaper option? A £100,000 mortgage at 5.49% over 25 years would cost £457.50 per month on an interest-only basis, and £620.64 per month on a capital repayment basis; but the true cost of the interest only mortgage is a staggering £51,000 more expensive over the full term of the mortgage.
“We believe this campaign is a win-win for all concerned. It helps de-risk banks’ loan portfolios while confirming clients are on track – or helping them to get on track – to repay their loan in full. For mortgage advisers, it provides a great opportunity to re-engage with clients, while for Openwork’s full financial planners it provides a number of potential investment opportunities.”
Openwork said it is the third largest UK network with over 2,500 financial advisers. It operates as a directly authorised, multi-panel distribution network and operates across pensions, investments and protection.
