With concerns growing that many interest-only borrowers do not have in place suitable vehicles to repay their capital in full, Openwork has been working closely with its key lender partners to ensure borrowers are not penalised for switching to a repayment mortgage. Clients of Openwork advisers will not pay an administration fee when switching loans with lenders including Nationwide, Halifax, C&G, Scottish Widows, Lloyds TSB Scotland and Woolwich.
To help advisers highlight the move to clients, Openwork is offering pre-approved template letters outlining the consequences of not having a repayment vehicle in place and the benefits of repayment loans.
Paul Shearman, mortgage, protection and general insurance proposition director, Openwork, said: “At least 20% of UK borrowers have an interest-only mortgage and FSA figures show the vast majority of them do not have a suitable repayment vehicle in place to pay the total outstanding debt. That is a huge concern to borrowers and lenders alike.
“The most common reason clients opt for interest only is affordability, but is it really the cheaper option? A £100,000 mortgage at 5.49% over 25 years would cost £457.50 per month on an interest-only basis, and £620.64 per month on a capital repayment basis; but the true cost of the interest only mortgage is a staggering £51,000 more expensive over the full term of the mortgage.
“We believe this campaign is a win-win for all concerned. It helps de-risk banks’ loan portfolios while confirming clients are on track - or helping them to get on track – to repay their loan in full. For mortgage advisers, it provides a great opportunity to re-engage with clients, while for Openwork’s full financial planners it provides a number of potential investment opportunities.”
