The number of providers offering interest-only mortgages has risen significantly within the last 5 years – but you’ll need a hefty salary to get your on the job a great deal.
Before the financial crash, interest-only mortgages were very popular – but captured the Financial Conduct Authority (FCA) expressed concerns concerning the ability of numerous existing borrowers to repay their loans.
Now, new data from Moneyfacts implies that more and more lenders are providing interest-only deals again.
Here we take a look at whether these products actually are making a comeback.
What are interest-only mortgages?
Interest-only mortgages involve only make payment on interest on your loan every month, after which paying down the main city you’ve borrowed at the end of the mortgage term.
These mortgages are risky, as they require borrowers in order to save or invest enough throughout the mortgage term to have enough to repay the full amount at the end.
Interest-only deals around the rise
Moneyfacts studies have shown that 33 providers now offer interest-only mortgages, almost triple the 12 lenders doing so in June 2013.
Despite this, the figure remains well below the 73 lenders recorded about ten years ago, prior to the financial crash.
But unlike some of the risky deals removed in that era, these products currently on the market mostly are only accessible to wealthy borrowers.
Interest-only mortgages for that rich
The best deals are currently offered at 40% loan-to-value ratio – with Accord’s 2 year discount product at 0.97% at the forefront in terms of initial rate, though this really is susceptible to a lb1,495 fee.
As along with a sizable deposit, you’ll require a big salary to obtain a decent deal.
While Metro Bank and Santander officially don't have any minimum income requirements for their interest-only loans (though strict lending criteria), Natwest asks for minimum income of lb75,000 along with a minimum equity of lb200,000 in your home you’re borrowing against, and HSBC needs a sole earnings of at least lb100,000.
You’ll also need to show a method for how you plan to pay off the mortgage after the word – whether a savings plan, a good investment portfolio or other assets you plan to market. While it’s probably you’ll also benefit from capital development in many areas of the UK, you will not have the ability to rely on this one thing as your plan to pay down the borrowed funds.
Concerns around interest-only mortgages
UK Finance claims that there are 1.7m outstanding interest-only mortgages in the united kingdom.
After concerns about many older borrowers not having enough money to repay their loans and lacking the ability to refinance them, the FCA announced it might amend a few of the rules around these loans in March.
The watchdog has sought to increase the number of deals available to people who reach later life and therefore are not able to repay their deals – and some products have been launched recently in this region.
Earlier this week, Hodge Lifetime launched a new retirement interest-only lifetime mortgage for people aged over 55 – claiming to be the first later-life lender to produce this type of deal.
The deal, that is available for two-year or five-year terms, allows voluntary overpayments of up to 10% per year, with the remaining capital being repaid when the owner dies or goes into long-term care.
If you possess an interest-only mortgage and you are worried you’ll find it difficult to pay it off, make contact with your provider without delay, as they can recommend whether it’s easy to restructure your payments or change to a repayment mortgage.