But a switch back to capital and repayment is likely
Searches for interest-only mortgages have significantly increased following the government’s introduction of the Mortgage Charter and another rise in the Bank of England base rate, criteria sourcing platform Knowledge Bank has reported.
The latest criteria index from its criteria search system has seen a comeback of the term ‘interest only’ to the list of the top searches for residential mortgages made by brokers on the platform.
Knowledge Bank said a switch back to capital and repayment mortgages in a few months’ time can be expected after the six-month hiatus allowed by the Mortgage Charter, if there was no similar uplift in individual savings accounts or endowment policies to pay off these interest-only mortgages.
The highlight of the new Mortgage Charter is that lenders who signed up to the charter are now able to offer borrowers a switch to interest-only payments for six months and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.
Meanwhile, another new entry in the top five searches for residential criteria was ‘joint borrower, sole proprietor’ – a mortgage that enables parents and other people to guarantor the mortgage, often of younger family members, while avoiding the additional stamp duty incurred by being on the house deeds of a second property.
‘Missed or late payments’ and ‘maximum age at end of term’ have been the top two, highest-trending residential searches throughout 2023 – demonstrating the ongoing pressure many are experiencing in meeting their mortgage payments.
Knowledge Bank noted that there was increasing evidence that many people are extending their mortgage terms to make their monthly payments more manageable. The search for new loans which will accept people with ‘missed or late payments’ also backs up recent figures from UK Finance that arrears are on the rise.
In both bridging and commercial, searches have remained mostly consistent throughout the year, showing a surprising level of stability not seen in other sectors.
In bridging, searches in the top three for both ‘minimum loan amount’ and ‘maximum LTV’ imply that people – usually developers – are looking to maximise their investment in a property.
New in the commercial sector top searches is ‘commercial owner occupier’, indicating an increased number of business owners considering ways to buy their own commercial office or premises to save on rising rental costs.
The search for ‘commercial property’ is also trending in the bridging category. With expectations of an exodus from the residential buy-to-let market, Knowledge Bank deduced that a number of more experienced investors are looking to more tax efficient commercial property instead to refurbish and let out or sell on.
But despite reports of landlords departing the buy-to-let sector, others are apparently still keen to join, with searches for ‘no requirements to be a homeowner’ and ‘first-time landlord’ trending up. This, according to Knowledge Bank, reflects the affordability challenges observed in the residential sector, where buy-to-let options remain an attractive alternative for those currently unable to meet the affordability constraints to buy a property they can live in.
“Brokers finding creative solutions for residential borrowers is definitely a theme, with many borrowers desperately seeking assistance with their mortgage terms and payment structures,” said Nicola Firth (pictured), chief executive at Knowledge Bank. “Others, not put off by these challenges are still exploring ways to buy their first property, be it with family support or by trying to buy a rental instead to give them a foot on the housing ladder.
“A growing number of brokers are wisely using criteria search to identify lenders capable of offering the required lending solutions. Despite ongoing economic shifts, searches show how brokers demonstrate commendable care and caution when advising vulnerable applicants seeking solutions.
“In the month that saw the launch of Consumer Duty, the key role of brokers in assisting both existing and prospective borrowers has never been more important.”
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