Interest-only mortgages could surge after coronavirus
Many mortgages on the market now come with an interest-only option, which could provide borrowers facing reduced income levels after the coronavirus with more choice, analysis suggests.
Almost two thirds of mortgages now allow for borrowers to repay just the interest on the mortgage for a period of time, Moneyfacts has found.
Interest-only deals were a popular option for many borrowers before the financial crisis hit, since then their availability has significantly reduced.
The number of pure interest-only deals makes up just 3% of all products on the market.
However, more loans do now allow interest-only as an option – provided there is a credible repayment plan in place.
Interest-only mortgages reduce monthly mortgage repayments helping to free up cash for borrowers.
Rachel Springall from Moneyfacts.co.uk said: “In recent years, the number of borrowers on an interest-only mortgage has fallen, by 8.9% between 2018 and 2019, and both the total number of interest-only mortgages and their value have fallen by half since 2012, according to UK Finance.
“However, there could well be borrowers struggling to meet their monthly commitments right now who want to switch to an interest-only mortgage over the short-term, as well as borrowers coming off an interest-only deal in 2020. In fact, there is expected to be 54,000 interest-only mortgages due to mature this year, and these borrowers will need to be catered for if they have outstanding debt.
“According to Legal and General Mortgage Club, there was a significant rise in broker enquiries about interest-only options between April and May 2020.
“Interest-only searches by advisers were the third-highest search in the first week of May.
“As borrowers come off mortgage payment holidays, more consumers could be debating an interest-only option and using an independent financial adviser is a wise choice to find the most appropriate deal during these challenging times.”