Interest only mortgages are back

[PeanutButter]

https://apple.news/AUkcmH2wZRfeE1QRDifOrWg

 

High street banks and building societies are offering new interest-only mortgages.

In the 1990s such deals, where none of the loan’s capital is repaid, were the most common type of mortgage, with many borrowers taking out an endowment policy with the idea that this would pay off the money they owed at the end of the term.

However, when millions of those endowment plans failed to pay out a large enough lump sum to cover the loans, homeowners were left struggling to keep their homes.

Interest-only deals were more or less killed off by tougher new lending rules after the financial crisis of 2008.

But this week Nationwide became the latest high-profile lender to offer a new interest-only loan to home-movers and people remortgaging, and others are expected to follow. Barclays, Clydesdale and Natwest already have interest-only mortgages.

According to Moneyfacts, a data analysis company, there are 2,556 mortgage deals where borrowers can choose all or part of the loan as interest-only. Both the number of borrowers taking out full interest-only loans and the number taking out a percentage of a loan this way are growing rapidly.

L&C Mortgages, a broker, says that if you took out a £200,000 mortgage at an interest rate of 2 per cent over a 25-year term, the monthly capital repayment would be £841.71 a month while an interest-only option would cost £333.33. If you split the loan between the two different types, your repayments would fall somewhere in between those figures, depending on the ratio.

A 25-year £200,000 repayment mortgage at a competitve rate of 1.25 per cent would mean monthly payments of £776.59 compared with £208.33 at interest-only.

Many interest-only loans are only available to the wealthy. Nationwide will accept applications only from borrowers with an income of at least £75,000, or couples with a joint income of at least £100,000. They will also need a deposit, or equity, of 40 per cent.

Some products have less strict criteria, with Leeds Building Society and Accord offering products that require no minimum income. Barclays and Natwest will accept deposits of 25 per cent for their interest-only mortgages, and Clydesdale Bank will accept 20 per cent.

Nationwide only accepts the equity held in your property as a guarantee that the loan will be repaid, so says that borrowers must have minimum equity of £300,000 if they live in London, £250,000 in the wider South East of England and £200,000 for elsewhere in the UK. There is a maximum borrowing term of 25 years.

Mark Harris, the chief executive of SPF Private Clients, a mortgage broker, says: “Interest-only is not suited to the mass-market, but can be useful for higher earners in receipt of large bonuses on a fairly regular basis who want more flexibility when it comes to paying their mortgage.”

The tough requirements are specifically designed to remove the biggest potential danger of an interest-only mortgage — that borrowers will have no way of repaying the mortgage at the end of the term and be forced to sell their homes. This was a factor that helped to trigger the financial crisis.

“This is why the new breed of interest-only mortgages is largely aimed at high earners who have access to bonuses which they can use to pay down the balance. They are not designed for borrowers who are strapped for cash and struggling to afford their mortgage, so want to save money each month in the form of cheaper payments,” Harris says.

The other big rule change on interest-only mortgages regards what qualifies as a repayment vehicle — that is, the guarantee you have to provide to your lender that you will be able to pay the loan back.

“Requirements today can be stringent,” says David Hollingworth from L&C Mortgages.

“For example, an Isa may be an acceptable vehicle, but the fund may need to already be big enough to cover the interest-only lending now.”

Halifax requires that borrowers intending to use an Isa for repayment have funds of at least £50,000 in it. However, only 80 per cent of the value of the Isa will be taken into account when the bankdecides how much someone can borrow.

Other lenders require a pledge that you will sell a property if you cannot pay off the loan at the end of its term.

[micawber]

Many interest-only loans are only available to the wealthy. Nationwide will accept applications only from borrowers with an income of at least £75,000, or couples with a joint income of at least £100,000. They will also need a deposit, or equity, of 40 per cent.

[Si1]

That's well timed

[Bruce Banner]

HPI at any cost....

[spyguy]

IO mortgages, inthe proper sense i.e. not endowments,  have always been available.

They were a very niche, expensive product only sold to the very usually wealthy/illiquid/down for an 100% sure inheritance.

Those numbers used in the poof piece mean only 0.01% of UK pop will be bale to get an IO mortgage.

The actual reality. when it comes to getting an IO mortgage will probably be even worse.

Straws. Grasping.

The Boe Has spent the last ~10 years trying unfuk the residential IO mortgage borrowers. Its been hard work. Even then, theyve only manged to sort out ~50% of IO mortgagee.

 

 

[2buyornot2buy]

2 hours ago, spyguy said:

IO mortgages, inthe proper sense i.e. not endowments,  have always been available.

They were a very niche, expensive product only sold to the very usually wealthy/illiquid/down for an 100% sure inheritance.

Those numbers used in the poof piece mean only 0.01% of UK pop will be bale to get an IO mortgage.

The actual reality. when it comes to getting an IO mortgage will probably be even worse.

Straws. Grasping.

The Boe Has spent the last ~10 years trying unfuk the residential IO mortgage borrowers. Its been hard work. Even then, theyve only manged to sort out ~50% of IO mortgagee.

 

 

+ this. 

They never stopped. 

HSBC offered me one 6 years ago with my premier account. They never went away, just got more selective.