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Interest-only revamp could benefit adverse borrowers

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Figures published in the summer by UK Finance showed that over the past seven years, the total number of interest-only mortgages has fallen by more than half (54 per cent), from 2.5m in 2012 to 1.23m in 2018. The number of interest-only loans set to mature by 2020 shrank by 91,000 in 2018 to 126,000 loans, a drop of 41.9 per cent compared with 2017.

This reduction in numbers represents an industry success story for regulated providers, as lenders continue to improve their contact programmes with borrowers and ensure plans to repay are on track. And it’s important to continue this momentum in 2020 and beyond.

 

Interest only is a tricky subject to tackle. It has received so many negative headlines in recent years and so many black marks from the mainstream press (rightly so in many cases) that it’s not always the easiest topic to broach. However, despite this being abused in the past, it has also proved to be a product which allowed many borrowers to get onto the property ladder who were otherwise unable to do so. Many of whom were able to build up sizable equity pots due to rapid house price rises in many areas. On the other side of the coin, it also led to the term ‘mortgage prisoners’ being coined.

 

Of course, those who have been around the mortgage market long enough will already realise the benefits as well as the pitfalls attached to, and created by, this product type and the additional support required by borrowers in this area. Support is the key word here. The number of borrowers with interest only deals are falling but there is still a huge quantity out there who would benefit from speaking to a mortgage adviser.

 

This demand was further outlined in the November criteria activity tracker from Knowledge Bank which revealed that a growing number of brokers are seeking interest-only options on behalf of their clients. Since February, the most searched-for term among brokers looking at residential criteria has been “maximum age at end of term”. But searches for “interest-only” were said to have climbed to second place in the rankings, from fifth place last month. In third place was “self- employed one year’s accounts”, followed by “capital raising for debt consolidation” in fourth place and “right to buy” in fifth.

 

This data helps to identify the many forms of specialist borrowing scenarios that are presenting themselves to brokers on a daily basis. And there is no question that these will grow both in popularity and volume as more and more credit-worthy borrowers are falling short of the strict underwriting requirements of mainstream lenders.

 

Lenders have to be fully aware of this ticking time bomb and be in a position to start providing responsible and appropriate solutions to such customers. Retirement Interest Only is a step in the right direction but as we’ve seen through recent FCA figures – where only 660 Retirement Interest-Only (RIO) mortgages were reported to have been taken since they were introduced by the FCA’s rule changes in March 2018 – as yet this is not making the impact which was expected in some quarters.

 

With a big spike in homeowners coming towards the end of interest only deals in 2030, there are still many customers that need to understand the options currently available and as a industry, we need to continue to investigate and develop new ways of helping such customers in the next ten years.

 

Refer

If you would like to pass the customer over to Impact Specialist Finance to handle, for example the case is too complex (Bridging/Over 55’s/Portfolios), you are going on holiday and they require an immediate solution or you don’t have the relevant permissions, we are able to accept referrals for regulated and non-regulated cases. You will still get paid and the customer will always remain yours!

 

Call the impact helpdesk to find out more on 01403 272625.