Interest-only mortgages have continued to grow in popularity as data showed brokers searched for lenders’ criteria on the products more times in August than any other previous month.
The data from Knowledge Bank, a criteria searching system for mortgage brokers, showed interest-only was the third most searched-for lender criteria in August — up from the fifth most in July, when it first appeared in the top five.
Interest-only deals mean borrowers only pay the interest on the loan during the life of the mortgage and then must repay the full capital when the mortgage term ends.
They rose in popularity in the run-up to the financial crisis in 2008, but there were concerns the products were allowing borrowers to buy otherwise unaffordable properties which led in part to the introduction of tougher checks around affordability and repayment plans as part of the Mortgage Market Review in 2014.
At the start of 2018 the Financial Conduct Authority reported nearly one in five mortgage customers had an interest-only mortgage and stressed it was concerned that shortfalls in repayment plans could lead to people losing their homes.
The problem is likely to continue as, according to UK Finance, there are about 1.7m interest-only mortgages totalling about £250bn outstanding in the UK, and about 200,000 of these policies are due to mature by 2020.
Many interest-only borrowers are also classed as mortgage prisoners because they found themselves trapped in their policies after the financial crisis as banks were less keen to take such customers on.
This issue has resulted in growing pressure from the regulator for new products to help consumers coming to the end of their interest-only mortgage with little or no ability to pay off the capital part of the loan.
The data from Knowledge Bank also showed the most searched for product for residential mortgages was ‘maximum age at end of term’ followed closely by ‘self-employed with one years accounts’.
Whether lenders accepted credit defaults registered in the past three years and those involved in the government’s Help to Buy equity scheme also made the top five.
Last month, interest in Right to Buy — a government scheme which allows council tenants to buy their properties at a discount — entered the top five searched for the first time but was not among the most searched for criteria in August.
In the buy-to-let market, lending to limited companies took the top spot. In August, research showed purchasing a buy-to-let property through a limited company was more than twice as popular as buying as an individual as more landlords sought out the most tax efficient methods.
Nicola Firth, chief executive of Knowledge Bank, said: “We are entering an unprecedented period of change in the country both politically and economically.
“The mortgage sector has never been more fluid and we can see from these results that product types rise and fall in popularity from month to month. As a result, keeping up to date with products and their accompanying criteria has never been more challenging.”
Ms Firth said there were almost 30,000 changes to criteria in the first half of 2019 and there was “little doubt” there remained a risk of a “tsunami of accusations of inappropriate product recommendations” in the coming years.
She added: “That is why it is so critical that brokers compile the strongest possible evidence now, during the advice process.”
imogen.tew@ft.com
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