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Guide to interest-only mortgages

    Guide to interest-only mortgages


    Scare stories suggested hundreds of thousands of Brits could struggle to take full ownership of their homes in the next few years due to the fact they opted for an interest-only mortgage.

    An interest-only mortgage gives cheaper monthly payments but the borrower is not actually paying back any debt.

    At the end of the mortgage term the borrower will still owe the lender the amount they borrowed to purchase their home.

    Due to concerns about interest-only borrowers failing to have enough capital the 2014 Mortgage Market Review imposed tight controls on lending, stress tests and assessing people’s capacity to repay this type of loan.

    This along with the credit crunch saw lenders withdraw from the market.

    But in recent months we have seen new entrants like TSB offer this type of loan.

    Could interest-only loans be set for a resurgence - what type of borrower is this type of mortgage suitable for in 2016?

    This guide aims to look at the changes to the interest-only market over the past decade, changes to regulation, and where you can go to find decent interest-only mortgages for your clients in 2016.

    Contributors include: Charles Haresnape, group managing director, mortgages, at Aldermore; Dean Mirfin, technical director at Key Retirement; Mark Howell, director of marketing and customer management, Bank of Ireland; Jonathan Harris, director of Anderson Harris; Roland McCormack, intermediary director for TSB; Jaedon Green, director of products and distribution for Leeds Building Society; Andrew Montlake, director at Coreco; the Council of Mortgage Lenders; the Prudential Regulation Authority; and the Financial Conduct Authority.

    In this guide


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. The FCA’s proposals for MMR said customers can have an interest-only mortgage, if what?

    2. Where does Mr Montlake claim the market has come to rest?

    3. How many interest-only mortgages were sold in 1988, according to the CML?

    4. On which part of the mortgage sector does the PRA’s CP 12/16 focus?

    5. What does Mr McCormack say lenders did in light of regulatory scrutiny?

    6. What does Mr Mirfin say is the worry with interest-only mortgages?

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