Interest-only mortgages

Residential interest-only mortgages aren't a great idea for most people, and there are thousands of people still sitting on interest-only mortgages without the capital to repay them. Over the next few years, we will see a significant rise in remortgaging for that demographic that took out mortgages in the late 90s. Interest-only approvals will continue to fall due to the strict lending policy accompanying them. That said, there are circumstances where interest-only is appropriate - mainly in the buy-to-let space where a landlord wants to be cashflow positive quickly and is more interested in investment yield than repaying the capital borrowed; however, there does need to be some strategy as to how you repay these loans and for landlords, it's predicted on property prices rising over time and selling the subject property hopefully for a profit to clear the balance of the debt.

Whilst the interest-only mortgage market is a small proportion of the total number of residential mortgages we see being done, it is still the right advice for some people in certain scenarios, so it would be wrong for it to disappear as a choice. I've done a couple of interest-only mortgages recently, in both cases my clients are buying second residential properties (one for their adult child and the other is a holiday home for their own use) and in both cases the clients do not intend to keep these properties forever, so an interest only mortgage makes sense to keep payments affordable. They are something that I think you should always take advice on, as an interest only mortgage is the crack cocaine of the mortgage world; once you are used to paying £400 per month it is very hard to move to the £650pm full repayment option a few years later. Having a clear reason for why interest only is the correct solution and having had a robust and detailed conversation about how it is going to ultimatly be reapid, is key.

Do you expect the proportion of interest-only mortgages to continue to fall? The demand for residential interest-only mortgages has pretty much fallen off a cliff, especially with the number of people who have been caught short with no means to repay the debt on their main home. Are there any circumstances where you would recommend an interest-only mortgage? I personally would not as I typically deal with first time buyers purchasing a residence but for buy to let mortgages interest only is common place as most will look to sell the property to clear the mortgage, interest only can work but only tends to work for those on a basic income of £100,000 or more where big bonuses are paid and used to clear chunks off their mortgage. Do you think there is still a place for interest-only mortgages? There is a place for them for but only for the right clean who has the means to actually clear the debt and can evidence it upfront.