Newspaper article The Evening Standard (London, England)

Resurrection of the Mortgage That Lenders Had Laid to Rest; after the Credit Crisis, Interest-Only Loans Were Seen as Too Dangerous. but Now They're Coming Back into Favour

Newspaper article The Evening Standard (London, England)

Resurrection of the Mortgage That Lenders Had Laid to Rest; after the Credit Crisis, Interest-Only Loans Were Seen as Too Dangerous. but Now They're Coming Back into Favour

Article excerpt

Byline: Simon Read

THE concept is simple: you take out a mortgage but only repay the interest each month, leaving the capital the amount you've borrowed untouched. Meanwhile, you have an alternative plan to raise the cash to repay the home loan.

Interest-only mortgages have been hugely attractive to borrowers in the past, not least because if they're not paying off any of the capital, it cuts the cost of monthly repayments.

But the credit crunch appeared to have laid the concept to rest. Bear in mind that back in 2006, before the crisis, there were 75 lenders eager to agree interest-only loans, according to statistics from Moneyfacts. By 2013 there were just 12, with big lenders such as Nationwide and NatWest pulling out. The building society still steers clear, saying: "Nationwide has not offered interest-only mortgages since October 2012. As a responsible lender, the decision was taken due to changes to the market environment and a decline in interest-only mortgage applications."

But continuing low interest rates are encouraging more people to consider a type of loan that seemed to have been laid to rest. Londoner Ian, who has been on interest-only since graduating 15 years ago, explains the attractions: "I've put the money I would have used to repay the capital into a medium-risk growth fund in an Isa. I reckon my investments will grow to be large enough to pay off my mortgage long before the end of my 25-year mortgage term."

He also says he has more flexibility: "If things are tight one month, I don't make the investment. If I was short on my mortgage repayment by the same amount, the lender would be shouting about it. It leaves me with greater control of my finances."

Lenders have woken up to the rising demand and the number now offering interest-only is 22, almost double the number in 2013. Many are also relaxing their criteria slightly, after making them more restrictive in recent years. …

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