Mortgages  

Guide to interest-only mortgages

  • Understand how interest-only mortgages have evolved
  • Find out how lending criteria has changed in response to regulation
  • Learn about what advisers' approach should be towards interest-only mortgages
CPD
Approx.60min
Guide to interest-only mortgages

Introduction

At the start of this year the Financial Conduct Authority warned the many interest-only mortgage borrowers who have not arranged a repayment plan to speak to their lenders as soon as possible, or risk losing their homes. 

The FCA said it was concerned shortfalls in repayment plans could lead to borrowers being unable to meet demands for payment from lenders as the terms of their interest-only borrowing come to an end.

With an interest-only mortgage the borrower only pays the interest on the mortgage through monthly payments for a term that is fixed.

After the term is over, the options are refinancing their homes, making a lump sum payment or begin paying off the capital of the loan.

In this guide, advisers can find out how the interest-only mortgage market has evolved and what lender appetite for these types of mortgages currently looks like.

It will also consider the types of borrowers for whom an interest-only mortgage is suitable and those that should avoid this type of deal completely.

This guide is worth an indicative 60 minutes of CPD.

Contributors to this guide: Jaedon Green, director of products and distribution at Leeds Building Society; Steve Seal, director of sales and marketing at Bluestone Mortgages, David Hollingworth, associate director of communications at London & Country Mortgages; Ray Boulger, senior mortgage technical manager at John Charcoal; Andrew Montlake, brand director at Coreco; UK Finance; and the FCA. 

Ima Jackson-Obot is a features writer for Financial Adviser

In this guide

CPD
Approx.60min

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. Interest-only mortgages were originally aimed at which group of people, according to the FCA?

  2. What was the FCA's main concern about interest-only mortgages?

  3. What was one of the big changes to the interest-only mortgage market that was introduced as a result of the Mortgage Market Review?

  4. UK's interest-only mortgage book now stands at a little more than half the number it was six years ago. Is this statement true or false?

  5. When considering an interest-only mortgage in the current low interest rate environment it makes more sense for a first-time buyer to do which of the following, according to mortgage broker Ray Boulger?

  6. How does a retirement interest-only mortgage differ from an equity release mortgage?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Understand how interest-only mortgages have evolved
  • Find out how lending criteria has changed in response to regulation
  • Learn about what advisers' approach should be towards interest-only mortgages

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