Almost one million home owners will face problems at the end of their mortgage term, as they have no way to pay off their outstanding loan on their interest-only mortgage.
Experts are concerned that although so many people face disaster, the number of lenders offering interest-only products has almost doubled during the last two years. Prior to the credit crunch, interest-only loans were readily available, with around 75 deals according to the statistics provided by Moneyfacts. However, by 2013 the number had reduced to just 13. The data for this year shows that there are now 22 deals available. Despite the worrying trend, mortgage experts state that interest-only mortgages aren’t as bad as they are portrayed, especially as lenders have extremely strict lending criteria for this type of product.
The introduction of tougher lending rules has made it much more difficult to obtain this type of mortgage, while lenders have stopped offering 100 per cent interest-only mortgages. As an alternative, lenders will offer part of the mortgage as interest-only and the remainder as a repayment mortgage, to ensure that a smaller amount is left unpaid at the end of the term. Experts reveal that lenders also now expect borrowers to demonstrate how they will repay the outstanding loan at the end of the term.
Although it is much harder to secure an interest-only mortgage, they are still available to those borrowers who demonstrate affordability. However, expert advice should still be sought from an adviser who is CeMAP trained.