The ultimate solution to the UK housing market recovery is still in hiding.  The problems which exist are not simple to fix, and allowing mortgage lending to get loose again would only be throwing petrol on an existing fire.  Enter the interest-only mortgage.  Once viewed as the primary means of landing the house of one’s dreams, nightmares are now being played out in real life as many cannot afford to pay the principal when due.  For many who obtained interest-only loans before the financial fallout in 2007, it was the most appealing avenue to owning a house.  Many first timers took advantage of it.  But, many others could have benefitted from researching a remortgage of their current residence.

David Hollingworth of London & Country commented on the current state of the interest-only loan, saying: "This mortgage market has toughened significantly in its approach to interest-only lending, to the extent that a number of lenders have stopped offering it to new borrowers.” 

Hollingworth added: “Those that still offer it have generally limited the maximum loan-to-value, often to only 50 per cent, and those that are prepared to go to 75 per cent are likely to run a strict rule over any repayment vehicle."

Steve Wilkie of Responsible Equity Release, commented on the appeal of the interest-only mortgage, saying: "It's not hard to see the roots of the problem. People were drawn by the reduced monthly payments.  However, in many cases, they either failed to put an appropriate repayment vehicle in place, invested in vehicles that didn't make the grade or saved too little to cover the debt. Or in some cases, they banked on an inheritance or pension tax-free cash windfall that never materialised."

Remortgaging a current property could be a way for the current homeowner to lower the monthly mortgage they are now locked into and save money.  For those who are first time buyers, interest-only loans may still have appeal.  But starting in 2014, lenders will be locked into stricter guidelines which will apply to this group of eager house owners.