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Is the death of interest-only such a bad thing?

by: Jonathan Clark
  • 18/09/2012
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Is the death of interest-only such a bad thing?
Whilst there have been many changes to the mortgage market in the last few years, the near extinction of the interest-only mortgage has certainly caused me (and my clients) the most headaches.

With very few exceptions, they fully understand why self-certification and impaired credit products have evaporated but I still get asked ‘why can’t I have an interest-only loan, I’ve had one for the last five years?’

Of course, the main problem occurs when they try to port their lifetime tracker mortgage they took in 2006 at BBR + 0.5% that they’re (rightly) a bit smug about and get told that their repayments are going to increase ‘slightly’ from £250 to £2,500.

But is this really a bad thing? Shouldn’t they be paying off their debts? Of course they should but (in the main) they’re intelligent people and it should be up to them.

For those fortunate enough to have a 50% deposit (or higher if they meet the Woolwich criteria) it’s still an option but you can’t blame lenders for preferring a structured repayment plan. Interest-only criteria is unlikely to change so let’s stop moaning and just get used to the way it’s going to be.

Refreshingly, my first time buyer clients never ask for an interest-only loan, they just accept that it’s going to be on a repayment basis, usually borrowing over 30/35 years initially and knowing that they can easily shorten this when their finances allow.

Does this mean that the new generation of borrowers are adopting a more Victorian attitude to debt? No, but attitudes do seem to be gradually changing.

The 90% mortgage market is certainly buoyant but it would be great to see a few more 95% deals from lenders where you don’t need to be related to the branch manager and live within walking distance of the Sedgebottom & Fingleton Building Society.

Jonathan Clark is mortgage partner at Chadney Bulgin

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