Mortgage advisors indicate refreshed appetite for interest only mortgages

Intermediaries say interest only mortgages comprised 20 per cent of new business introduced in the second quarter of 2019, down from a 2007 peak of 28 percent, but significantly higher than five years ago. Repayment mortgages made up almost all the remaining proportion of new business in that time.

The latest numbers, from Paragon’s long-running, quarterly Financial Adviser Confidence Tracking Index (FACT), suggest interest only mortgages continue to offer an effective solution for a substantial proportion of customers where a credible repayment strategy is in place.

Despite the increase in interest-only introductions recorded in the latest FACT survey, regulated providers remain focused on reducing the overall number, value and average Loan to Value (LTV) ratio of the UK’s interest only mortgage stock.

While repayment mortgages are now by far the most popular type of mortgage, interest only continues to have an important part to play in the post-MMR environment.

For customers who can demonstrate appropriate provision for paying back the capital, interest only mortgages provide a useful vehicle for controlling costs whilst allowing customers optionality to invest and build capital elsewhere.

Higher LTV requirements and closer scrutiny of repayment plans however mean interest only is now a much smaller part of the overall market.

John Heron Managing Director | Mortgages at Paragon
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