While interest-only mortgages will never be sold in the volume they were in the early 2000s, says Martin Reynolds, SimplyBiz Mortgages chief executive, he adds that “that is not a bad thing”.
What can be seen, Reynolds also says, is that the market reviews and reacts to challenges and makes appropriate adjustments to help borrowers.
“In fact, over the past few years we have seen lenders start to be more approachable in relation to interest-only, as well as part-and-part mortgage repayment plans. Their criteria have been adjusted to become more flexible, allowing more people to utilise their own circumstances to their advantage.”
Chris Sykes, technical director at Private Finance, a mortgage broker, also notes how some lenders have become more flexible recently on interest-only criteria, citing Accord and Halifax.
“There are also other lenders that are soon making further changes to their interest-only [criteria], making things more flexible. For example, part-and-part up to higher loan-to-values.”
On the other hand, when it comes to borrowers, Sykes says the number of clients getting an interest-only mortgage has increased. “With the cost of living and increased rate environment, more people have been looking into options of lowering their payments when refinancing.
“This can be by making overpayments, by increasing the term or by putting some or all of the mortgage on interest-only. There has definitely been more interest by clients, and more applications going this way lately.”
Data from Legal & General Ignite, a mortgage research and sourcing platform, shows that searches for interest-only mortgages increased by 11 per cent from June to July, following a 53 per cent increase from May to June.
“The uptick in searches for interest-only mortgages certainly characterised July and can be linked to the announcement of the Mortgage Charter the month prior,” says Jodie White, head of mortgage products and transformation at Legal & General Technology.
“Borrowers are leaning on this support as the market continues to grapple with the new interest rate environment and wider cost of living pressure.”
Nevertheless, Newell at Paradigm does not believe that interest-only will become only a reserve for difficult times.
“Moving a client to interest-only for a period has always been in the armoury of lenders as a forbearance option, but it has generally been an option that is considered as a last resort.
"The Mortgage Charter has brought this more to the forefront without lenders needing to go through the full forbearance discussions and affordability processes with the client.
“There may be a part of the overall psyche that then begins to believe interest-only should only be an option for hard times, rather than what it actually is: a suitable and workable repayment strategy for some clients.
