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Interest-only changes belie MMR intention

Interest-only mortgages are at a crossroads. Ten years ago 15% of purchase loans were interest-only, doubling to 32% in the next five years.


The percentage of those without a repayment vehicle rose to 73%. This trend continues despite the fall in the number of such loans and last December the share of borrowers without a repayment vehicle stood at 80%.

Recent changes from Lloyds Banking Group and Santander show they were not comfortable with their interest-only criteria.

December’s Mortgage Market Review paper put the interest-only ball back in the lenders’ court and most have thrown in the towel.

It seems lenders are worried about being sued by borrowers if their repayment vehicle does not cover the balance due. And having to continually check whether it is on track to pay off the loan makes interest-only more costly and labour-intensive than before.

The result is lenders are tightening criteria so certain types of borrowers have no chance of securing an interest-only product.

While it will still be viable in areas such as buy-to-let, one gets the feeling that interest-only for residential mortgages will be a decreasing space in the years ahead. This is a shame as responsible interest-only lending can help many borrowers, not least first-timers.

If the regulatory burden is too high, lenders will withdraw, leaving one to ask if this is in tune with the core objective of the MMR – delivering a mortgage market that works better for consumers and is sustainable for all participants.


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