News

Jun 26

Full Time Whistle to be Blown on Interest Only Mortgages

With mortgage lenders such as Halifax following Britannia, Yorkshire Bank and Scottish Widows into a phase-out of interest only mortgages, there has never been a more crucial time for borrowers – especially those with complicated situations – to take independent mortgage advice.

Lending criteria is being further tightened as a precautionary measure leaving borrowers in the dark over their options, especially those who are self employed, have credit issues or are looking for investment lending.

Lenders Protecting their Own Interests

Halifax has recently added a 0.2% premium on its interest only loans, effectively protecting themselves from default borrowers and closing the door on the interest only option.

When the interest rate fell from 5% to 0.5% at the beginning of the recession, people on interest only mortgages benefited greatly. However, it is believed that instead of putting aside the money saved to pay off capital; many are expected to have squandered it. The risk of borrowers defaulting on these loans is high and therefore the banks are understandably nervous.

So who will this phase-out affect? Unfortunately, even responsible borrowers will potentially lose out as the regulations are tightened across the banking and mortgage industry. First time buyers and buy to let investors will be reeling as they previously favoured interest only loans due to the lower monthly repayments compared with other types of mortgage.

Self employed borrowers who have in the past favoured interest only mortgages for their flexibility will now find it far more complicated to find finance.

Focus on the Positive

However, Geoff Charles, Managing Director of Bower Mortgage Company, believes that borrowers should focus on the positive side of the phase out.

“Interest only mortgages should never have been seen as a permanent solution. With these interest only loans being phased out by major lenders, it may make people sit up and realise that by seeking independent financial advice there could be better options available to them.”

Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. 

Bower Mortgage Company: FSA regulated UK-wide mortgage advice from friendly, qualified, experienced mortgage planning specialists. Quality, face to face advice and a strong focus on building long term customer relationships. For money saving mortgage and mortgage protection advice, contact Bower on 0800 411 8668 or e-mail info@bowermortgagecompany.co.uk.