Accord has entered the interest-only market in response to rising demand for the repayment option from borrowers. The intermediary arm of Yorkshi
Accord has entered the interest-only market in response to rising demand for the repayment option from borrowers.
The intermediary arm of Yorkshire Building Society is offering interest-only options to new borrowers seeking up to 75 per cent loan-to-value (LTV) and who could afford to repay the loan on a capital and interest basis but choose only to pay the interest accrued.
Borrowers need to demonstrate they have an acceptable repayment strategy in place at the end of the mortgage term, which could include existing endowments or savings and investments.
Accord will allow the sale of the mortgaged property at the term end to be used as a repayment strategy, on condition that the amount borrowed against this strategy does not exceed 50 per cent LTV and there is a minimum of £200,000 equity within the property.
Interest-only mortgages, which require borrowers to pay off monthly interest but not capital, were popular with homebuyers in the years leading up to the financial crisis of 2008.
But many of those who took out the loans failed to put adequate repayment plans in place, leaving them in danger of repossession.
In 2012, regulations were introduced by the Financial Conduct Authority to ensure the mortgages could not be sold without a repayment plan, leading to a decline in their popularity.
Around 10,000 borrowers a year between now and 2020 are set to reach the end of interest-only loans with either a projected shortfall from their repayment strategy or no strategy at all, according to an estimate by equity release lender Key Retirement.
Charles Canning, managing director of Accord Mortgages, said: “Demand for interest only mortgages is increasing and for borrowers who have made an informed decision that this repayment method best meets their needs, and who have a clear strategy to repay the loan, we understand the additional flexibility it can provide.
“As a responsible lender, we have designed a lending policy that reflects the needs of borrowers and meets those needs in a financially sustainable way. We’re confident the introduction of interest only options will be welcomed by brokers and borrowers looking for choice in the market.”
Ruth Whitehead, principal at London-based Ruth Whitehead Associates, said it is “always good” to have more choice.
“But the bottom line is this is a residential mortgage and they are saying whoever wants to have one should do so on a repayment mortgage basis, which has its own set of criteria.
“If this is a residential mortgage, the majority of people are going to opt for a repayment mortgage anyway – especially if they can afford to repay it. I would have thought it would be applicable to a small number of people.
“You can get interest-only mortgages with other providers at lower LTVs as well. Accord have not come up with anything new.”