Once Popular Interest Only Loan not part of Mortgage Lending Landscape Today

Once Popular Interest Only Loan not part of Mortgage Lending Landscape Today

Interest-only mortgages were quite a hot item during the last successful run of mortgage lending.  During the year 2007, interest-only mortgages accounted for an estimated 30% of all new mortgage lending.  This period closely preceded the months of the market collapse, which the current market is still trying to recover from.  It has been said by more than one economist close to the market, that the interest-only mortgage was offered liberally too many who had no real way of paying it back.  Since then, several mainstream lenders have abandoned the product in exchange for less risky mortgage lending tools.

Lower demand in the interest-only mortgage has also affected the number of loan products of that type which are widely available.  Natwest recently completely stopped offering the product, quickly followed by Coventry Building Society.

The Financial Services Authority placed new conditions on making the interest-only mortgage available earlier in the year.  They stipulated that the interest-only is a special type of loan suited for borrowers who had a realistic method of repaying the loan.  Many homeowners rely heavily on the interest-only mortgage as the only way home ownership is possible.  Needless to say, the interest-only is able to make home ownership a reality, but leaves little room for shortcomings when the loan term is ending.

Mark Harris, chief executive of mortgage broker SPF Private Clients, commented on the type of borrower best positioned for an interest-only mortgage, saying: "Interest-only is suitable and appropriate for a certain type of borrower. It is not suitable for everyone and in retrospect at the height of the market interest-only mortgages were dished out rather too freely.”

Harris added: "The market desperately needs innovation to help people afford to move and buy properties."

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