Is this the beginning of the end for interest only…
Throughout this year, in light of the Mortgage Market Review, all Lenders have been reviewing their stance with regards to interest only mortgages. This was mainly aimed at uncovered interest only mortgages. For example, where the borrowers were relying on the sale of an additional property, future inheritance or the ultimate sale of the mortgaged property to actually repay the debt.
They were still happy to continue to lend on an interest only basis to borrowers who had a loan to value of below 75% and had an acceptable repayment vehicle in place. Acceptable plans would be the tax free cash element of a pension, existing Endowment policy or any equity ISAs that had a significant value.
However, as of Monday 3rd December, The Royal Bank of Scotland, Natwest and The Coventry Building Society have all announced that they will be no longer accepting any Interest Only applications whatsoever for new borrowers, even if a previously acceptable repayment vehicle is in place. This will not affect any existing borrowers that already hold mortgages within these companies, but would affect anyone with an existing interest only mortgage that wants take out a mortgage product that these lenders offer in the future.
No other Lenders have so far decided to stop providing interest only mortgages altogether, however, as one or two decide to stop, that normally starts a trend and others follow suit.
I would suggest that any Clients that have interest only mortgages in place at the moment contact us to discuss their options, even if you are still tied into a current deal. There are lots of great offers available at the moment but these are primarily aimed at capital repayment mortgages. Therefore, the sooner you review your current situation, the more time you have to plan, budget and prepare for when your current mortgage scheme expires.