Interest Only Mortgages Are Making A Comeback After 3 Years
The interest only mortgage is making a comeback after an absence of only 3 years. Interest only mortgages were all but taken out of the market three years ago as part of a slew of changes introduced to the mortgage market.
Hundreds of thousands of interest only loans were introduced after 2001 as borrowers were not able to afford repayment mortgages so opted to take out interest only loans. This type of loan allows the borrowers to pay off just the interest part of their mortgage and doesn't pay down any of the capital part of the loan. This means that a borrower either needs to sell their home at the end of the loan or find the capital from somewhere else to pay off their mortgage.
All Lenders Pulled The Plug Three Years Ago
Nealrly all lenders pulled the plug on these loans because they were seen as risky. The problem for many buyers is that it took away the opportunity for many people to take out a mortgage because a repayment mortgage is considerably more expensive. After consideration from some lenders it looks as though interest only loans could be introduced again.
Barclays now offering interest only loans at 75% loan to value
Barclays Bank have become the first lender to relax it's rules and is offering interest only loans to borrowers who intend to use the capital from the sale of their home to repay their loans. The new loans will require a 25% deposit but it is likely this will be reduced in future as other lenders start to get in on the act. Some of the smaller building societies have said that they will offer interest only loans on a case by case basis.
Financial Conduct Authority wants to see reintroduction
It must be said that the Financial Conduct Authority has made a u turn as it was very critical of these loans back in 2012. It once described these loans as a ticking time bomb but it has now said that these loans should not have been taken out of the market completely as they were still suitable for many borrowers.
As long as house price continue to rise these mortgages are all well and good. The problem arises when the housing market sees a drop in prices.