If you thought interest-only mortgages perished during the financial crisis, be prepared for a revival in this area of borrowing. But this time, banks have tightened their lending criteria, narrowing the amount of people who can use them.
Take Leeds Building Society for instance. It’s among the first of the lenders to return to interest-only, offering customers an option to only pay the interest on the loan, and pay off the rest of the capital at the end of the mortgage term.
Borrowers can also take advantage of a Part & Part mortgage, where they split the amount they borrow into two payment methods: interest only and repayment of both capital and interest.
The benefits? Well, both arrangements help keep payments down, but either way, home buyers must be sure they can pay the balance at the end of the term.
For customers who can raise 50% deposit, the Society offers an interest-free deal on the entire mortgage. Otherwise, customers with lower deposits must pay using the Part & Part method.
Woolwich are among other lenders offering interest-only, and there are rumours that Natwest are also following the trend.
It’s great that banks and building societies are adding yet more options to the mortgage market, but with borrowers being more risk averse nowadays, will interest-only deals prove to be popular once again? Clearly there’s a demand; since 2013 the amount of lenders offering the mortgages has nearly doubled to 22. But this time around, the preferred customers are existing home owners with equity already in properties, not first-time buyers.
Speak to us to find out more about interest-only and other mortgages: 01223 266140.