Most Loans On A Repayment Basis
There has been a significant shift in the attitude towards home owner loans and mortgages over the course of the past couple of years or so, both from a lender’s perspective as well from borrowers, many of which have been brought about by the proposals in the Financial Service Authority’s (FSA) Mortgage Market Review (MMR).
One of the biggest changes has been how the number of interest only loans has fallen in recent months, compared with the figures from before the credit crunch.
According to the latest figures from the Council of Mortgage Lenders (CML), around 93 per cent of all home owner loans were taken out on a full repayment basis throughout the month of October this year, the highest level since records began, back in 1974.
Prior to the credit crunch, before 2007, somewhere in the region of one third of all home owner loans were taken as interest only loans, but many lenders will no longer allow an interest only loan unless the borrower can show evidence of a suitable repayment vehicle for the loan.
The FSA proposals suggested that there should be a complete ban placed on interest only loans, as this demonstrated a lack of affordability for the loan from the borrower and it seems that the vast majority of banks and building societies have jumped on this particular band wagon, possibly out of fear of the regulator.
However, many financial experts believe that there is a valid place for interest only loans in the market place.
Alan Lakey, a partner with Highclere Financial Services said “I don’t know where the market is going, but I think interest only remains a really valid tool for those who want to downscale their current lifestyle in anticipation of future changes. For many first time buyers it’s the only way to get their foot on the ladder.”
