Dale Jannels, managing director of Atom (All Types of Mortgages Ltd), says the MMR rules state that interest-only mortgages are still allowed for residential buyers, but only where there is a credible strategy for repaying the capital.
Mr Jannels says lenders are now a lot more hesitant to offering these types of mortgages on residential properties and reasons such as ‘sale of main property’ as a suitable repayment vehicle tend to no longer be accepted.
Lenders must assess whether a customer can afford the sums due and must not enter into a transaction unless it can demonstrate this, says Keith Barber, associate director of business development at Family Building Society.
Lenders must assess customer affordability of both repayment of capital and payment of interest over the mortgage term, unless lending on an interest-only mortgage entered into on the basis of a reasonable assessment of affordability, Mr Barber points out.
Advisers need to make it very clear that lenders may only lend on an interest-only mortgage if there is evidence that the customer has a clearly understood, credible and considered repayment strategy, Mr Barber adds.
He says advisers should make sure the repayment strategy will have the potential to repay the capital and any interest reasonably expected to be accrued.
