Paragon noted that since 1996 we have seen the demise of endowment mortgages as people lost confidence that their policy would generate sufficient funds to repay the original loan. Instead a growing number of home owners turned to repayment (capital and interest) mortgages which ensured that the debt was repaid by the agreed date.
However, more recently, repayment mortgages have appeared to decline in popularity. Their market share has fallen from over 70% in 2003, to 58% now.
This is largely due to a rise in interest-only mortgages - the proportion of broker business made up by interest-only mortgages has risen from 11% to 26% over the last four years, according to the research by Paragon.
John Heron, managing director of Paragon Mortgages, explained: “Repayment mortgages remain the mortgage of choice for owner occupiers. The interest-only sector has grown both with house prices and buy to let. Interest-only mortgages are ideal for buy-to-let investors who benefit by maintaining gearing and at the end of the term, have the choice to either re-finance or sell the investment property to pay back the loan. However, the owner occupier must be more vigilant when opting for an interest only mortgage. Without the flexibility of being able to sell the family home to repay the loan at the end of the term, it is vital they ensure there is a repayment vehicle in place.”
