For certain borrowers
Interest-only mortgages have been under the hammer lately with most lenders steering well clear of them. However, with a gap in the market a particular high street Building Society is loosening their criteria guidelines to accept the sale of a property as a valid means of repayment, available to certain borrowers who meet conditions.
New interest-only mortgages are rare
Lenders have been fearful from offering interest-only mortgages since regulations were tightened around this area of lending.
Last year, Citizens Advice Bureau estimated over 1.7 million borrowers holding interest-only mortgages had no means to pay back the repayment part of the loan at the end of the term. They estimated that 433,000 were not even thinking about it.
Some customers are not even fully aware that they have a lump sum payment obligation when their interest-only period expires.
Subsequently, interest-only mortgages became a high risk product and lenders were not widely offering new arrangements, instead encouraging their customers who held an interest-only mortgage to switch to a regular repayment mortgage of a “part and part” option.
Read more – Are there any interest-only mortgages available (for regular borrowers)
Interest-only works for some customers
Despite the bad press, interest-only mortgages work for some customers, if they are responsible in their approach to borrowing.
With other lenders staying quiet on this front, one high street Building Society, so far, have loosed their lending criteria to bridge this gap in the market and be responsive to borrowers’ needs and feedback.
Their criteria now allows for the sale of a property to be considered a valid means of repayment at the end of the interest-only term.
This applies for those with a part and part interest-only mortgage, with a 75% Loan to Value (LTV).
“As anticipated, part and part has been particularly popular for remortgages as it offers borrowers currently on full interest-only the flexibility to start paying down their loan in a manageable way.” Martin Richardson, Leeds Building Society
This approach widens opportunities for borrowers who could use interest-only mortgage as a means of affordable, flexible borrowing.
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