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NatWest reintroduces interest-only mortgages

NatWest reintroduces interest-only mortgages

NatWest Intermediary Solutions has reintroduced residential interest-only mortgages for new business from 21 September.

NatWest pulled all of its interest-only mortgages from the market in December 2012. According to Graham Felstead, head of NatWest Intermediary Solutions, the relaunch comes after a thorough review of the market.

He said: “We believe we can help many customers, who meet specific conditions, with their home ownership needs with interest-only mortgages.”

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However, the products will only be available to customers who fulfil specific eligibility criteria. All interest-only mortgages focus on high net-worth customers who must earn a single gross annual income of at least £100,000, have an acceptable repayment strategy and take a maximum LTV of 75 per cent.

The move to launch these products comes against a backdrop of criticism about consumers’ ability to ultimately repay such mortgages, with Citizens Advice claiming that nearly 1m people with interest-only mortgages have made no arrangements to pay them off when their terms end.

Key Figures:

The FCA’s 2013 study into the interest-only market found that, for those set to repay their loans before 2020:

■ 600,000 borrowers will see their mortgage mature in this period

■ 90 per cent of all interest-only borrowers had a repayment strategy

■ Just under half of all interest-only borrowers were likely to have a shortfall

■ A third of the 2020 shortfalls were expected to be over £50,000

Source: FCA

NatWest has stated that customers who take this mortgage option will need to have approved repayment strategies in place and to stay on track to repay the loan.

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said he did not think this launch was bucking the general trend to tighten up on interest-only lending.

He said: “New interest-only mortgages, such as the one launched by NatWest, are different in shape and structure [to previous products]. This one is very much focused to a niche market, demands a high net-worth salary and other specific criteria. Therefore, the product has been redesigned and will only be appropriate for a certain target audience.”

Adviser View

Alison Mitchell, mortgage adviser for Edinburgh-based Robson Macintosh & Co, said, “NatWest pulled out of the interest-only market completely three years ago. It is now an area it wants to look at again, but with less risk, hence the spotlight on high-net-worth customers.

“Interest-only mortgages can be positive if used properly; some clients find they can earn more money by saving in an investment fund for instance, and then paying the mortgage off in one lump sum.”