Homeowners to have Fewer Choices for Interest Only Remortgages
Those homeowners hoping to remortgage to an interest only deal will find there are fewer choices being offered from lenders as more made decisions to end such offerings. RBS, NatWest, Nationwide and Co-operative have all announced that they will no longer offer interest only deals to remortgagers or property buyers. Now Coventry Building Society (CBS) will end their interest only offerings as well.
Interest only remortgages allowed homeowners to pay only the interest due on the loan monthly without reducing the overall debt until the end of the term of the loan. Those currently on interest only deals will be allowed to move their mortgage to a new property loan or deal but cannot increase the debt amount without regular repayment amounts that tackle the interest as well as the principal debt.
CBS chose to end interest only deals due to a lack of demand from borrowers.
Colin Franklin, CBS sales and marketing director remarked, “Residential interest-only mortgages have declined to less than 2% of all residential mortgage applications. We have therefore decided the time is right to leave this market.”
There had been expectation that the Financial Services Authority (FSA) would end the ability of all lenders to offer interest only deals but that did not happen. Instead there were strong recommendations made to lenders to assure that borrowers were capable of repaying their debt on an interest only deal.
Many homeowners had hoped to use building equity levels of their property to offset the debt of an interest only deal. Yet, declining property values left many homeowners mortgage prisoners and drowning in mortgages that were underwater. Many found that what was a reasonable financial decision pre-economic crisis became a financial nightmare as they held mortgage debt beyond their property’s value and no way of remortgaging when house prices declined. This is why the FSA had considered banning such loans so as to protect borrowers from unforeseen problems in the future with such a risky undertaking to purchase a property.