The sharp transition from a long-standing low interest environment to a significantly higher one has inevitably given rise to some short, medium and longer-term concerns over remortgage payments, existing financial commitments and property-related plans.
These lending and borrowing conditions have inevitably placed an even greater emphasis on the mortgage advice process. Emphasis which is only likely to further accelerate given the increasingly multifaceted nature of the current economic and lending landscape. Meaning IMLA’s prediction that intermediaries could account for 90% of mortgage distribution by 2024 – as reported in its ‘New Normal’ report earlier this year – remains very much on the cards.
Not that it’s all plain sailing for intermediaries. Client conversations have become more and more difficult, as has servicing their incredibly complex borrowing needs. Thankfully support is available, especially when it comes to shorter-term options and many intermediaries are opting to work even closer with specialist packaging partners to access these types of solutions.
One particular product which has emerged on the radar of borrowers and intermediaries over the past 12 months is the interest-only mortgage. This is a product type which maintains a certain stigma in some quarters, and rightly so to a certain extent. However, the interest-only mortgage has evolved since its pre-credit crunch days when it was a far more prevalent ‘mass market’ option, transitioning into a more specialist product with an appeal which now appears to be growing.
According to research from global research and insights agency, Opinium, over two-fifths of mortgage advisers have seen demand increase for interest-only mortgages during the past year. Additionally, similar consumer research found that one in seven (15%) consumers would consider taking out an interest-only mortgage in the future.
Looking at the reasons behind this rising demand, the top three emerged from clients hoping to lower monthly costs (57%), clients struggling with current mortgage payments (41%), followed by clients trying to keep month-to-month housing costs low (41%). A further one in five (21%) reported clients that were planning to downsize.
This breakdown demonstrates the variety of situations where an interest-only option can be the right solution. For example, a client may recently be self-employed or just been made a partner in their firm. They could have high levels of equity in their home and simply be looking to reduce their monthly outgoings to settle some higher interest debt, cover school fees or put their children through university. Maybe they are purchasing a property as a short-term investment or purchasing a second property to eventually turn into their primary residence.
However, these are not always easy scenarios to place. Lenders operating in this market tend to have their own individual criteria and policy requirements. By this I mean some lenders don’t require a minimum time in self-employment and will take into account a clients track record within a business. They may also accept different
repayment methods, as this is key when advising on an interest-only mortgage. It’s all about digging that bit deeper into employment histories, current financial situations, ongoing commitments and future plans in order to better package a case to meet these specialist lending needs.
An interest-only mortgage will certainly not be the best option for all borrowers but when the right questions are asked, it might just prove to be the right solution to meet a specific clients current and future demands. Especially when you work with a trusted specialist packaging partner to source the most appropriate lender and fully support the case from application through to completion.
Donna Wells, Managing Director at Envelop