Number of interest only mortgage products rise but take up is down due to tighter rules
The number of interest only mortgage products has almost doubled over the past six years, rising from 102 products in May 2013 to 193 products today, the latest research shows.
However, this increase in products has not led to a greater number of approvals of this type of product despite overall mortgage approvals nearly doubling over the same period.
Figures released by the Financial Conduct Authority (FCA) and the Bank of England show that approvals for interest only mortgages fell from 26,592 in the first quarter of 2013 to 24,148 in the fourth quarter of 2018.
According to Darren Cook, finance expert at Moneyfacts, the figures suggest that although borrowers are still able to locate potential suitable interest only mortgage products, with around a third of all residential mortgage products offering interest only as a repayment method, tighter rules and stricter lending criteria following the aftermath of the financial crisis may be leading to a lack of appetite for this sector.
‘Apart from passing stricter lending criteria, it is essential that a borrower looking to apply for an interest only mortgage first develops a strong and viable repayment action plan before approaching a potential interest-only provider. It is likely that the mortgage provider will request and scrutinise this plan early in the application process before proceeding further with the application,’ he explained.
‘For those borrowers who may have reached retirement age while on an interest only mortgage, the FCA has loosened the regulations on retirement interest only mortgages. As a result, mature borrowers will now be able to find a much greater choice of retirement interest only products that allow them to only pay their monthly interest on their mortgage until they die or go into long-term care when the property is sold to repay the mortgage capital,’ he pointed out.
He added that there are 193 residential mortgages currently available that have interest only as the only repayment method, of which 44 products are retirement interest only products.