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New Push To Grow The Interest-Only Mortgage Market

Leeds Building Society looks to widen the market for interest-only mortgages.

The chief commercial officer of Leeds Building Society, Richard Fearon believes that mortgages that do not include repaying the capital value of a property have “become the domain of the wealthy”. He adds his company wish to serve “the mass affluent too, the self-employed, and those wanting more flexibility.”

Market Yet To Recover Fully After 2008 Credit Crisis

The credit crunch of 2008 led to greater restrictions in many areas of credit provision. This squeezing of the market was combined with greater regulator scrutiny, cited by many organisations as a contributing factor behind them leaving the market. The activity of the regulators of the City gave rise to stricter rules presented in the 2014 Mortgage Market Review.

Mr Fearon states that throughout this time L.B.S. “never left the interest-only market” and he now expects that “we will see other lenders get interested in coming back to the market over time.”

As of the end of 2015, Council for Mortgage Lenders data shows that Britain had £238bn of interest-only stock, of which £208bn was purely interest-only.

The New Products

L.B.S. is increasing the percentage they are willing to loan based off a property’s value from 50% to 60% across all interest-only mortgages. Part-and-part mortgages can also get 60% loan-to-value mortgages with a further 15% available through their capital repayment component.

Affordability tests will be the same as capital repayment mortgages and stress-tested in conditions of up to a 7% interest rate.

Predictions

Market research carried out by the Financial Conduct Authority and GfK found that by the year 2020, around 600,000 interest-only mortgages will mature. Almost half of all interest-only mortgages are predicted to have a shortfall and a third of shortfalls in 2020 are expected to be greater than £50,000.

For Independent Mortgage advice please contact us at Hoskin Mortgages for more information.

Clare Allen.

Hoskin Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority number 613005. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Say Goodbye to your Standard Variable Rate (SVR)

Whilst many homeowners choose to re-mortgage as they reach the end of their current deal, many still opt for the flexibility of their lender’s Standard Variable Rate (SVR). Around 3.2 million residential mortgage accounts in the UK are on a SVR scheme – that’s a market size of around £280 billion*.

With the Base Rate at a standstill, many borrowers might just stick with the flexibility of their SVR, paying an average interest rate of 4.92%**. But with new mortgage rates at an all-time low, this does mean that many of these borrowers are missing out on the opportunity to save money, or pay off their mortgage early by re-mortgaging.

Reasons for your re-mortgage

· Put money back in your pockets – a new mortgage deal could reduce monthly payments.

· Help shorten your mortgage term – if you continue paying the same monthly payment as you are currently these overpayments could pay your mortgage off sooner.

· Switch form interest only to repayment- if you are a homeowner with an interest only mortgage, you could move a portion or all of your mortgage to repayment basis, with the added benefit of paying off some of or all of the capital.

· Free up some cash – re-mortgaging could free up equity to pay for things like home improvements.

· Peace of mind – switching to a fixed rate lets you know exactly what your monthly payments will be and help you to plan for the future.

For more help and advice on Mortgages please do not hesitate to contact us @ Hoskin Mortgages.