Interest-only mortgage availability doubles since 2013
The number of interest-only mortgage products has almost doubled over the past six years, according to Moneyfacts, rising from 102 products in May 2013 to 193 products today.
This compares to 2,736 repayment mortgages and 2,072 products that are available to take out on either basis (repayment or interest-only).
However, the financial information provider found that this increase in products has not led to a greater number of interest-only mortgages actually being taken out by borrowers.
Figures released by the Financial Conduct Authority (FCA) and the Bank of England show that approvals for interest-only mortgages have actually fallen over the same period, from 26,592 in the first quarter of 2013 to 24,148 in the last quarter of 2018. This decrease is even more significant as it comes alongside overall mortgage approvals nearly doubling.
Darren Cook, finance expert at Moneyfacts.co.uk, said: “Although borrowers are still able to locate potential suitable interest-only mortgage products – with around a third (32.02%) 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.”
Rise of RIOs
Half of the rise in interest-only specific mortgage products can be accounted for by the rise in Retirement Interest-Only mortgages (RIOs), which account for 44 of the 193 interest-only deals available.
With a RIO, the lender will accept ‘sale of the property on death or move into long-term care’ as a repayment method, and this type of borrowing is expected to grow further as the population ages.
Cook explains: “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.”