Accord Mortgages has added interest-only repayments to its existing mortgage range.
The intermediary arm of Yorkshire Building Society is offering interest-only options to new borrowers who are applying for up to 75 per cent loan to value (LTV).
To meet the lending criteria, borrowers will have to show they have a suitable repayment strategy in place at the end of the mortgage term. This includes existing endowments or savings and investments.
Accord will allow for the sale of the mortgaged property at the end of the term to be used as a repayment strategy, where the amount borrowed does not exceed 50 per cent LTV and there is a minimum of £200,000 equity within the property.
For example, if the property is worth £400,000, to meet the criteria of reselling the property the borrower would need to stump up at least £200,000 as a deposit.
Accord is also offering the interest-only repayment options on its offset mortgages, which it claims will provide borrowers with additionally flexibility when managing their home loan.
Legal & General Mortgage Club, which offers Accord’s products through its lender panel, said the lender was offering more choice for the intermediary market by introducing interest-only.
Jeremy Duncombe, director of Legal & General Mortgage Club, said: “Interest only is an important option for the right customers who have received appropriate advice from a mortgage broker.”
Interest-only mortgages, were popular with homebuyers in the years leading up to the 2008 financial crisis. But many of those who took out the loans failed to put adequate repayment plans in place, leaving them in danger of repossession.
In 2012, they fell even more out of favour. The Financial Conduct Authority introduced regulations to ensure mortgages could not be sold without a repayment plan, leading to a decline in their popularity.
Additional reporting by Simon Allin.
Provider view:
Charles Canning, managing director of Accord Mortgages, s aid: “Demand for interest-only mortgages is increasing, and for borrowers who have made an informed decision that this repayment method best meets their needs, and who have a clear strategy to repay the loan, we understand the additional flexibility it can provide.
“We have designed a lending policy that reflects the needs of borrowers and meets those needs in a financially sustainable way. We’re confident the introduction of interest-only options will be welcomed by brokers and borrowers looking for choice in the market.
“To help brokers place interest-only cases with us and ensure efficient turnaround times for clients we have dedicated interest-only underwriters ready to answer any questions.”
Adviser view:
Ian Dawson, director at Yorkshire Life Financial Services, said: “The key thing for me, when I see a lender offer interest-only, is their repayment strategy. It would be good to see more lenders [offer interest-only], but a lot of them are still really cautious because of when the Financial Conduct Authority said there were too many people with interest-only mortgages with no sensible repayment strategy.
“There are not many lenders that allow sale of main residence as an acceptable interest-only repayment strategy. It would be good to see more lenders do it for those with a lot of equity and a sensible and realistic plan to downsize at the end of the term. The fact that Accord will now consider it with no minimum income criteria is overall welcome news.”
Charges:
No additional charge for borrowers opting for interest-only repayment, just the initial mortgage product fee, depending on which mortgage a borrower chooses.
Verdict:
Many lenders are still nervous about interest-only mortgages, but offering it in a way that provides a practical repayment approach while still allowing people to make lower mortgage payments could be popular. For those who want to use the resale option, it would mean they would have to bring out quite a bit of cash for the deposit.
