Demand rising for interest-only mortgages

Over two-fifths of mortgage advisers have seen demand increase for interest-only mortgages during the past year, according to new research.

Related topics:  Finance,  mortgages
Property | Reporter
3rd October 2023
Mortgage Search 339
"There is a concern among mortgage advisers that clients do not fully understand the risks involved in taking out an interest-only mortgage, but rather they seem to be interested in the short term benefits this type of mortgage deal can offer"
- Alexa Nightingale - Opinium

Despite almost half of Brits being aware of the risk of negative equity, growing numbers are seeing interest-only mortgages as an appealing option, according to new data released by global research and insights agency, Opinium

Additionally, similar consumer research found that one in seven (15%) consumers would consider taking out an interest-only mortgage in the future.

Looking at the reasons for interest in interest-only mortgages, the top three were clients hoping to lower monthly costs (57%), clients struggling with current mortgage payments (41%), followed by clients trying to keep month-to-month housing costs low (41%). A further one in five (21%) say clients plan to downsize.

Looking at what UK adults aware of interest-only mortgages believe to be the main advantages of an interest-only mortgage deal, 49% said lower initial monthly payments, 27% said cash flow, followed by 15% seeing it as an opportunity to invest the difference.

However, 71% of mortgage advisers are concerned about clients not fully understanding the risks associated with interest-only mortgages, 41% are concerned about clients struggling if their repayment plan underperforms, and 19% are concerned about clients paying off more interest and potentially missing out on savings.

For those aware, the primary concerns differed, with 47% concerned about the risk of negative equity, followed by 41% who are worried about the potential for higher total interest costs, and limited building of home equity (27%).

Alexa Nightingale, Head of Financial Services Research at Opinium commented: “In today’s challenging economic times, it is perhaps not surprising that interest-only mortgages are more on the radar of homeowners, particularly as they offer lower initial monthly payments and cash flow flexibility.

"Despite the appeal, it is important to note that not everyone will be eligible for an interest-only mortgage and can be tricky to qualify for.

“On top of this, there is a concern among mortgage advisers that clients do not fully understand the risks involved in taking out an interest-only mortgage, but rather they seem to be interested in the short-term benefits this type of mortgage deal can offer, as opposed to considering the potential longer-term risks.

"As such, it is important for advisers to ensure they are covering all bases in conversations with clients so that they can make well-informed decisions.”

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