Interest only: why the negative press?
Let’s not shy away from the elephant in the room. You may have read articles talking about how borrowers are sitting on interest only deals without the capital to repay them, or how interest only isn’t necessarily suited to the majority. But it’s these articles that give us the perfect basis to reframe the conversation. Why interest only has its place, and why it’s lost its way.
As lenders and advisers, we know it’s not about advising more clients interest only is the right move for them, its recognising that for some clients, those outside of the majority, that it can be the perfect option. Interest only is still needed and that’s why Hodge, and other lenders continue to offer it.
Who’s interested in interested only?
It can be suitable for a cross section of borrowers, from buy-to-let and holiday let landlords to older borrowers. For people who’ve retired and can afford to make monthly interest payments and who’d like the peace of mind that their mortgage is in place for life.
Interest only also lends itself well to wealthier borrower and professionals. Those with a more complex income structure. They can benefit from lower outgoings to manage cash flow, while having a clear repayment plan in place, such as relying on bonuses to pay down the mortgage.
Another segment of the population who’ll be considering interest only, maybe for the very first time, are those who’ve been hit badly by the cost of living crisis. Households with unsecured debt who need to reduce monthly outgoings. It isn’t the best solution for all clients, but for some it may be the best short-term option.
Why it’s vital brokers understand interest only
Lenders and brokers agree interest-only mortgages serve an important role in the market. What will ensure that it continues to serve the market its intended for, is that customers who are considering interest only, are given sound and strong advice.
Interest only needs to remain an offering for the clients that will benefit. Together, it’s our role to ensure the right customers are the ones who take advantage of the benefits of interest only mortgages.
Customers need to be able to speak with advisers who’ve a clear understanding of why interest only could be the best solution. This can only be done by having direct and honest conversations with customers. Brokers also need to work with lenders who fully grasp the complexity of the client’s income and potential repayment structures. And can consider cases on an individual basis.
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