From the first discussions of the Mortgage Market Review, interest only mortgages were heavily featured. In fact interest only mortgages were the first area of the market that we saw becoming affected by the upcoming legislation.
Over the past two years interest only mortgage options have steadily reduced as lenders have either stopped offering them, or offered them only in specific circumstances.
Under the Mortgage Market Review a customer must demonstrate to the mortgage lender that he/she has in place a clearly understood and credible repayment strategy. Failure to do this will not satisfy the Mortgage Conduct of Business regulations.
What does this mean? Interest only criteria may tighten further, and certainly won’t relax.
As far as we can see, lenders will most likely allow existing interest only borrowers to continue as they are.
Borrowers looking to move or increase their mortgage will probably not be able to maintain their interest only arrangement.
Buy to let and interest only
The exception to this reduction of interest only options is the buy to let mortgage market where deals are commonly set up on an interest only basis. Buy to let mortgages are still non regulated and investors will continue to be able to select interest only mortgage options without a repayment vehicle.
Lender’s are aware of the risk of borrowers trying to pass home purchases off as buy to let deals in order to circumvent the regulations and obtain interest only arrangements. This is one of the main reasons lenders ask for buy to let borrowers to evidence that they already own their own home before seeking investment lending.
coming tomorrow…Mortgage Market Review and Independent Mortgage Advice