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Brokers - how are you finding the interest-only market?

Journalist: John Fitzsimons, Freelance

ended 29. August 2023

Morning brokers

Data from Knowledge Bank shows that broker searches for interest only shot up in July, likely off the back of the Mortgage Charter (https://www.mortgagesolutions.co.uk/news/2023/08/24/mortgage-charter-sparks-borrower-demand-for-interest-only-mortgages-in-july-knowledge-bank/)

I'd love to get a sense of what your experiences with this have been? Have you had many clients looking to switch to IO?

Is demand all being driven by cost of living pressures, or are there other factors at play?

And how are lenders performing on this front? Are they holding up their end of the bargain? 

Any and all thoughts on the rise in interest for IO, and what it means for the market going forwards is very welcome. Thank you!

10 responses from the Newspage community

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Darryl Dhoffer
Founder at The Mortgage Geezer
Fortunately, many clients I am speaking to, have made wholesale standard living cost reductions, and only a handful have required a part interest and part repayment mortgage, and only two clients enquiring about a full interest-only payment holiday for 6m.
That said, I have many renewals coming up over the next 6 months, and this will lead to additional conversations on interest-only mortgages. I think the rise in Interest Only mortgages will be more apparent as we see out the remainder of 2023
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Bob Singh
Founder at Chess Mortgages
I've always been a big fan of Interest-Only mortgages BUT only if the customer profile fits i.e. future income

The current cost of living crisis has exerted pressure on most and even more pressure if you're coping with a new rate on your mortgage.

It's no surprise therefore the attention of borrowers has swung towards interest-only as a survival measure not least due to the mortgage charter which only offers a short-term solution to a medium-term problem.

The principle of responsible lending initially led to a blanket ban ( around 2014/15) after the Mortgage Market Review. Since then lenders have dipped their toe back into this market albeit selectively and conditionally citing minimum incomes and/or equity as qualifiers.

I feel that age should be a primary factor too. Interest-only mortgages should be made available unconditionally up to age 45. This still leaves 25 years to repay a capital and interest mortgage. This would enable many to buy property now and plan their lives
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Cost-of-living pressures have certainly seen more clients want to look at and consider whether an interest-only mortgage if only for a short period, could be beneficial to help them manage their tightened monthly budget.
However, lender criteria around residential interest-only mortgages have not eased and don't offer many options for most clients. The real danger is borrowers doing this with no clear plan on how to repay their interest-only mortgage making a whole new lending crisis in the future.
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Mike Staton
Director at Staton Mortgages
Many clients have enquired about interest-only mortgages but the issue is that most people that do need to do it are just not in a position to do so. In my opinion, it takes some dire scenarios to switch your residential mortgage to an Interest-only mortgage, that dire in fact, that if you need to do so, you should probably consider downsizing. You will always lose to the banks, you just get to choose how you lose, unless the bank doesn't like you losing that way.
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
We haven't noticed any rise in requests for interest-only mortgages. Even though we discuss different choices as part of our advice process, our clients still mostly want to make sure they're steadily paying off their debt.
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Gareth Davies
Director at South Coast Mortgage Services
We've had a lot of people asking about interest-only but thankfully due to the added criteria involved, only a select few qualify. I think it's right that the interest-only sector is still subject to stringent controls such as minimum income and equity requirements etc. Back in the early 2000's, interest-only was far too easily obtained.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
For many consumers, interest only kicks the can down the road. Without a concrete way to repay the mortgage at the end of the term generally a new interest only residential mortgage is a complete non-starter as few lenders will offer a mortgage without evidence that a repayment vehicle is in place. For that reason, it remains a niche product.
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Mark Stallard
Director and Advisor at House and Holiday Home Mortgages
In truth, I haven’t seen people needing to switch to IO, because clients are managing their commitments well. Having said that, our customers are our lifeblood, and we’re doing all we can to give advice that both helps and supports each individual. Because house prices remain high, we’re aware that JBSP mortgages are an alternative way for families to assist younger members. But when it comes to the idea of choosing BTL instead of a home, I’m old-fashioned. Shortcuts aren’t always what they seem. As for lenders, right now I’m finding they’re very keen to give as much support as possible to customers.
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Samuel Ewen
Managing Director at Rosehill Financial Services
Interest-only enquiries have actually been far lower than I expected. With general rising costs and higher interest rates, I thought people would be contacting us actively asking about interest-only mortgages, but this has not been the case at all.

For those who do wish to arrange an interest-only mortgage, various criteria typically need to be met. Examples could be a certain level of equity, a certain income or a mixture of both. Lenders will want to see a clear repayment strategy at the end of the term, too.
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Peter Stamford
Mortgage Expert at Stamford Home Finance
Given the rising living costs, I expected many more inquiries about interest-only mortgages. But, they've been notably few. These mortgages might seem helpful, but strict lender rules make them hard to secure. It's crucial to have a solid repayment plan. As the year continues I'm preparing for more discussions, but long-term financial wisdom remains key for the average borrower.