Leeds Building Society has launched a mortgage allowing clients to borrow up to 75 per cent loan-to-value with a maximum of 50 per cent on an interest-only basis and the remainder on capital and repayment.
Available exclusively to Paradigm Mortgage Services members, is a two-year discount offered at 2.35 per cent (standard variable rate less 3.34 per cent) up to a maximum of £1.25m for 65 per cent LTV and £1m for 75 per cent LTV.
It comes with cashback of £300, a free standard valuation up to £560, and fees-assisted legals for remortgages. The arrangement fee is £199.
The product is available to purchase or remortgage borrowers in England, Scotland, Wales and Northern Ireland and comes with no higher lending charge or booking fee.
Borrowers can also make 10 per cent penalty-free capital overpayments each year, interest is calculated on a daily basis, and there is a tapered early repayment charge of the amount redeemed over the two-year period.
The building society believes part interest-only mortgages are suitable for a number of borrower groups, including high net worth individuals, interest-only remortgagors and ‘endowment shortfall’ borrowers.
Martin Richardson, general manager for business development at Leeds Building Society, said the deal offers borrowers the ability to start reducing the capital they owe in a manageable way, without the payment shock of moving to a full repayment mortgage.
“We’re seeing strong demand from remortgagors, many of whom will have taken out interest only loans at the peak of their popularity in the mid-2000s. These borrowers may have an endowment shortfall or have yet to reduce the original amount of their loan.”
John Coffield, head of Paradigm Mortgage Services, said the deal could also be appropriate for those endowment holders who have a shortfall and want to convert a portion of the mortgage to capital and repayment.”
Back in February, the Council of Mortgage Lenders reminded lenders of the need to communicate with legacy interest-only book ahead of interest rate rises, warning that challenges remain.
The Mortgage Market Review rules stated that interest-only mortgages do have a place in the market and could be used if a consumer has a “credible strategy” to repay the capital at the end of the term.
CML’s head of member and external relations Sue Anderson explained that lenders will need to identify those customers who may benefit from looking at their finances before rates rise, adding that this is beneficial to ensure they are in a “more resilient position than they would otherwise be”.
emma.hughes@ft.com
