Traditional interest-only mortgages were popular in the Nineties and 2000s. Interest was coved monthly and additional funds were paid into a separate repayment vehicle. This might have been an endowment policy. However, the mortgage lender rarely asked about the repayment vehicle and these were often cancelled when budgets became tight or the policy did not perform. It is thought that there are over 1.6 million people with an interest-only mortgage who do not have any way of repaying them.
New, Financial Conduct Authority (FCA) rules have been introduced that allows banks to relax lending criteria for the older borrower. Previously the mortgage would have to be repaid by age 65 or 70. These new interest-only mortgages allow you to continue making interest payments indefinitely. The capital is only repaid when the property is sold or when the customer goes into care or passes away.
To qualify for these new types of mortgages you must be able to demonstrate that you can afford the interest repayments. This may be an issue if your retirement income will be low. However, other options such as equity release may be appropriate.
The initial rate we are seeing range from 3.50 to 4.00 % depending on the size of mortgage or the term. Both fixed and variable rate terms are on offer. They also come with an arrangement fee varying between £500 to £1,000. We would expect that with more lenders coming into the market competition may help to see these terms improve.
These mortgages are a really useful financial planning tool for financial advisers. To see if these products are suitable for you why not arrange an appointment to receive a personal illustration.
Anstee & Co are Independent Financial Advisers (IFA’s). This means that we offer unbiased advice. We will look at all the options available to you and we do not work from a limited panel of providers.
We have offices in-
Our expert advisers also make use of meeting rooms in Northampton, Bedford, Wellingborough, Warwick and Droitwich. Home visits can also be arranged. Why not contact us to arrange a free initial meeting.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.