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Interest-only demand falling, says Paragon

Interest-only mortgage deals are on the way out, reveals Paragon Mortgages.

The buy-to-let specialist conducted a survey of over 200 financial advisers and found that interest-only accounted for 23% of mortgages introduced by brokers during Q3 2008.

This is down from 26% in Q1.

Prior to this, the last recorded fall in the proportion of interest-only mortgages was in Q1 2004.

Conversely, repayment deals have risen and now account for 60% of mortgages introduced in Q3 2008.

Repayment mortgages had been in decline since they peaked at 70% in Q4 2001.

Nearly half – 49% – of mortgages introduced by the panel brokers in Q3 2008 were fixed-rate deals, compared with 46% in the Q1.

Base Rate tracker deals remained unchanged over the period at 40% although it is expected that the popularity of these deals will grow due to cuts in Base Rate.

John Heron, managing director of Paragon Mortgages, says: “We have seen lenders become far more cautious over the past 12 months and less prepared to lend to customers on an interest-only basis. At the same time, borrowers are also looking for security and are locking themselves into long-term fixed-rate deals.

‘I’m sure a number of those that took out a long-term fixed-rate at the start of the quarter are regretting the decision following the recent Bank of England Base Rate cut, but at least they will know exactly what their monthly mortgage payment will be for the chosen period.

“There are advantages and disadvantages to long-term fixed-rate deals and borrowers need to be comfortable with the length of time that they are signing up for.’


Choice in a shrinking market

The UK mortgage market has shrunk considerably in the past year. September saw just 33,000 mortgage approvals – dwindling near historic lows. Gross lending is estimated at £260bn for 2008 – around £100bn less than 2007 – and net lending for the year seems set to reach just £50bn, while 2009 looks bleaker still.

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