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Interest-only demand ‘not as high as expected yet’ say brokers ‒ analysis
While there has been an uptick in enquiries from clients considering a move to interest-only, it has not been to the levels expected, according to intermediaries.
Data from Knowledge Bank revealed that searches from brokers about interest-only have grown of late, a trend which it put down to the introduction of the Mortgage Charter in July.
And while some brokers reported a growth in enquiries, some observed not to the levels that might be expected, though some suggested demand is likely to grow over the course of the year.
Banking on rates reducing
Some brokers said they had seen a growth in clients interested in moving their mortgage to an interest-only basis, in large part due to rising money pressures elsewhere.
Jane King, mortgage adviser at Ash Ridge Private Finance, said that she had seen a jump in clients looking to go interest-only for affordability reasons, with borrowers often banking on being able to go back to capital repayment when rates reduce.
She added: “I have cautioned them in respect of this opinion as there are no guarantees, however should their position improve they could make overpayments. I have also recommended that part and part is considered as at least they will be repaying some of the capital during the term of the mortgage.”
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The cost of living pressures and interest rate hikes “go hand in hand somewhat” in boosting interest among borrowers for both interest only and extended terms, explained Sebastian Riemann, director of Virtus Private Finance.
He said he had also seen a “significant” number of clients, on both residential and buy to let, opt to reduce their borrowing substantially.
He added: “It does appear that many of the more affluent and established home owners put aside monies to be able to overpay.”
Bob Singh, founder of Chess Mortgages, said he had always been a big fan of interest-only mortgages, so long as the customer profile fits, and noted that the cost of living crisis had “exerted pressure on most and even more pressure if you’re coping with a new rate on your mortgage”.
As a result, he said it was no surprise that borrowers had picked up on interest only “as a survival measure”.
There isn’t the interest expected… yet
Not all brokers reported an increase in interest, however. For example, Anil Mistry, director of RNR Mortgage Solutions, said that his clients “mostly want to make sure they’re steadily paying off their debt”.
According to Samuel Ewen, managing director of Rosehill Financial Services, enquiries about going interest-only have been “far lower than I expected”.
He said: “With general rising costs and higher interest rates, I thought people would be contacting us actively asking about interest-only mortgages, but this has not been the case at all.”
This was echoed by Peter Stamford, director of Moor Mortgages, who said he had expected many more enquiries from clients, but “they have been notably few”.
Darryl Dhoffer, mortgage expert at The Mortgage Expert, said that many of his clients had made “wholesale standard living cost reductions” so only a handful had looked to either go full interest only or part and part.
However, he suggested that the increased interest in interest only will become more apparent over the rest of the year.
Mark Stallard, director of House and Holiday Home Mortgages, was another who said he had not seen much need among clients to move to interest-only as they “are managing their commitments well”.
The lender approach
On the whole, brokers were positive around lender attitudes towards interest only, and supporting struggling borrowers more generally.
Riemann said there were “plenty of options” for borrowers, with the FCA also having worked on building a viable exit strategy for interest-only borrowers by enhancing later life lending options.
“Whether this is a good thing or not remains to be seen but it does make the move to interest only less risky for the current cohort,” he said.
Stallard was another to praise the approach of lenders, saying that he had found them “very keen to give as much support as possible to customers”.
However, a host of brokers pointed out that the strict rules around interest-only mean that it may not be an option for many. Stamford for example said they are “hard to secure”, while Mike Staton, director of Staton Mortgages, said that many who are interested in moving to interest only “are just not in a position to do so”.
This isn’t necessarily a bad thing either, according to some intermediaries. While there have been “a lot of people” asking about interest only, “thankfully only a select few qualify,” explained Gareth Davies, director of South Coast Mortgage Services.
He welcomed the fact that the sector is still subject to stringent controls, since in the early 2000s “interest-only was far too easily obtained”.
Stephen Perkins, managing director of Yellow Brick Mortgages, emphasised the danger of borrowers turning towards interest only with no clear plan on how to repay the loan down the line, “making a whole new lending crisis in the future”.