The nature of interest only mortgages has changed in recent times. In the past there was no requirement for an appropriate repayment vehicle to be in place, hence they enticed a number of buyers to step onto the property ladder. The belief at the time was that interest only mortgages were a good option for would be buyers to get onto the property market. As house prices rose, it was envisaged that they would simply pay off the rest of the loan at the end of the term through the property's resale.
As early as 2006, the FSA raised the point that people had to be very clear about how they were going to pay off the outstanding loan at the end of the term. The same issue has been echoed more recently by Martin Wheatley, managing director of the FSA, saying that homeowners on interest only loans had to have a 'concrete repayment plan'. The FSA lending rules state that those applying for an interest only mortgage must have evidence of a repayment plan which does not rely on rising house prices.
Nationwide made the news in October as the biggest building society to pull out of offering interest only mortgages; citing interest only lending as becoming a 'niche product', which they felt was not something Nationwide should offer as they are not 'a niche lender'. This followed the Co-op and Manchester building society having done the same earlier in the year. While all groups have said that clients currently on interest only mortgages will not be affected, this set the tone of the future for borrowing.
In recent weeks other major lenders including RBS, NatWest and Coventry Building Society all pulled out of the interest only market. Signs therefore suggest interest only mortgages are becoming less available to those looking to borrow. This may mean trouble for those already on interest only mortgages, as their ability to re-mortgage onto another interest loan will prove extremely difficult.
As a result, it looks like the nature of interest only mortgages has shifted along with the economic down turn. For a number of years they were a popular option for homeowners and were widely available from the majority of banks. Now their future is firmly restricted, only offered by a ขายบ้าน select few lenders, who still require a proper and plausible explanation of how the loan will be repaid at the end of the term.
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