If you have an interest-only mortgage now could be the time to consider switching products before the window closes.
In the last two weeks, both Natwest and Coventry Building Society ceased offering interest-only mortgages for residential property following Nationwide’s decision to do the same some time ago.
Add to this the vast number of lenders who have restricted interest-only borrowing to less than 75%, 66% or even 50% of the property value and the market for these mortgages is now stricter than ever.
Borrowers on interest-only mortgages currently sitting on their lender’s variable rate should consider changing their mortgage to a new product now before the market contracts further.
With the FSA’s announcement that interest-only lending would become part of the mortgage market review following the credit crunch, many lenders have reacted in a kneejerk fashion, and Eliminated the option for customers with a suitable repayment strategy to refinance their loan regardless of the plausibility of their circumstances.
This is already creating a large number of mortgage “refugees” unable, simply due to the lender’s criteria to arrange a new mortgage and who then become trapped on a variable rate without the option to move.
Whilst this may not be the end of the world whilst the Bank of England Base Rate is low it could result in thousands more repossessions in the event of the collapse of the Euro.
This scenario would almost certainly see wholesale increases in lenders’ standard variable rates which many borrowers might find too large to handle.
For those in the last years of an interest-only mortgage or even halfway through with borrowing of more than 50% of their property value, waiting too long to consider a move to a new product could see them shut out of the market in the long term.
Of course, for those borrowers without a suitable strategy for repaying an interest-only loan, then this is the right time to think about switching either to a full repayment mortgage or alternatively, if investments such as endowments are not performing and are predicted to fall short of requirements, a part repayment and a part interest-only loan might be suitable.
For more information contact one of our whole of market advisors on 0845 4594490.