Lenders are starting to offer cheaper rates for repayment mortgages in a bid to steer borrowers away from interest-only deals.
Halifax for Intermediaries is the latest lender to change its criteria in favour of repayment deals.
It hiked the rates on its tracker mortgages for interest-only payments in March and has now done the same for its fixed rates.
A spokeswoman for Halifax for Intermediaries says the lower rates are a reward for borrowers who make higher payments.
She says: “This is designed to encourage borrowers to pay off more of their capital each month.”
The higher rates only apply to Halifax’s intermediary products at the moment. The lender says it has no plans to increase rates in its branch network at the moment but is reviewing the situation.
Legal & General has been speaking to lenders on this issue for the past few months and says it is becoming clear more will be incentivising borrowers to move away from interest-only deals.
Martyn Smith, head of mortgage products at Legal & General, says some lenders are insisting on evidence that repayment vehicles are in place rather than
relying on customers’ assurances.
He says anyone on an interest-only mortgage must be aware of their debt and not rely on house price rises or increasing income to repay the capital.
Smith adds: “I accept that in the longer run the asset will appreciate in value but it’s easy to get hooked on an interest-only mortgage and not tackle the real issue, which is of course the debt.”
Smith says borrowers must wean themselves off interest-only if they are not making arrangements to repay, such as through an equity ISA.
He adds: “Even if they are over-paying where allowed or switching to a part interest-part repayment deal, it’s better than not paying off any debt at all.”