by Mark Johnston
More Lenders Drop Interest Only Mortgages!
According to recent figures Interest only mortgages still account for nearly one in 10 of all UK home loans.
Over the past year lenders have either toughened up their criteria or dropped out of the interest only mortgage market entirely.
Many lenders in recent years have restricted interest only lending after concerns that many borrowers simply have no investment vehicle in place to repay their debt. In response to this, the Financial Services Authority (FSA) recently drew up tough guidelines for the sale of interest only products.
On the back of these new guidelines the Royal bank of Scotland (RBS) decided in October this year to only offer interest only mortgages on an advised basis rather than in a branch or over the telephone.
However from the 3rd of December 2012 two of the UK’s largest lenders closed their doors to interest only deals. The Royal Bank of Scotland (RBS) and NatWest will no longer accept mortgage applications on an interest only basis.
Moray McDonald, head of home lending at RBS and NatWest, said: “Residential interest only mortgages have been a declining part of our mortgage lending, with only 4 per cent of customers now applying on that basis.
Although, Buy to Let mortgages will still be available on an interest only basis and any existing borrowers will not be affected by the change. Existing interest only borrowers will only be affected if they try to re-mortgage in the future.
This move is the latest sign that the interest only mortgage market is closing up, leaving existing borrowers limited choices if they need to remortgage.
Andrew Montlake, a mortgage expert at Coreco mortgage advisers, stated that “The fact that RBS and NatWest have finally given up the ghost on interest-only lending, especially after Nationwide’s withdrawal a few weeks ago, could well be a game-changer in the fortunes of mainstream interest only mortgages”.
“With three of the UK’s most well-known lenders having withdrawn interest only deals it can only be a matter of time before more follow suit,” added Keith Osborne, editor of new homes portal whathouse.co.uk.
Coventry Building Society has also withdrawn from the interest only market, claiming that this type of loan accounts for less than 2 per cent of their mortgage applications.
With other lenders having already withdrawn their interest only deals, it is becoming harder and harder for borrowers to secure this type of deal. This is true even if they have if they have a repayment vehicle in place.
Some industry experts feel that as more and more mainstream lenders withdraw this type of deal, it could be left to private banks and bridging lenders, which in themselves have a chequered past, to offer these type of loans.
In conclusion, with interest rates still relatively low, perhaps it may be time for these individuals to consider switching to a repayment mortgage in order to start the process of paying down the debt on the property.
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