A further 15% of brokers said that their clients opt for interest-only mortgages for property investment purposes, 6% said debt management, 3% said lender forbearance while 25% of brokers cited other.
David Hollingworth, head of communications at London & Country, said: “I think other reasons for borrowers to choose interest-only is that they offer more flexibility, enabling people to use work bonuses or future inheritances as repayment vehicles.”
Lloyds TSB and Northern Rock have recently clamped down on interest-only borrowers, insisting on at least a 25% deposit, up from 15%.
Both lenders also refuse to accept a future inheritance or work bonuses as repayment vehicles and borrowers can only take out an interest-only loan on condition that they switch later to repayment.
Hollingworth added: “Lenders know that mortgage debt will only be repaid with a capital repayment loan.
“Although lenders will continue to lend on an interest-only basis, it stands to reason that in the current climate they want to see documentation from borrowers to prove they have an adequate repayment vehicle in place to repay the debt.”
He added that despite lenders imposing stricter criteria on the loans, it will not be the end of interest-only deals.
“Lenders are simply being more cautious and taking steps to cover themselves, whether by raising the permissible loan to value or asking more questions.”
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