Interest only mortgages making a come back

Interest only mortgage deals are slowly being re-introduced by lenders, following a period where they were virtually unavailable.

Although interest only products had been available from some lenders, the criteria is so strict that very few buyers would be approved.

Saffron Building Society, based in Essex, has recently become the latest lender to offer an interest only product. Only specific professions will be considered, including lawyers, teachers and doctors. The criteria for qualifying for this product is still very strict, and often requires a minimum salary and a large deposit.

Despite interest only mortgages being known as a high risk strategy for purchasing a home, a number of lenders state that the loans are suitable for some people. An interest only option means that in many cases, borrowers don’t repay any of the capital, although lenders will require evidence that a buyer has the ability to pay off the capital at the end of the mortgage term. Options for repayment may include savings, downsizing, endowment policy or selling a second home.

The interest only mortgage offered by Saffron requires a deposit of 30% before being considered for approval. The criteria and Loan To Value (LTV) available varies with different lenders, with some considering a 75% loan and others offering lower LTV percentages.

As the criteria for an interest only product remains strict, buyers considering this option may want to seek advice from a professional. Mortgage advisers are required to undertake CeMAP courses and know which lenders may be suitable for each individual, depending on their circumstances.



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