Interest-only mortgage holders are taking stronger action to ensure they can pay off their loan, according to new figures.
A survey conducted by the Council for Mortgage Lenders (CML) has noted a huge increase in the amount of these homeowners clearing their outstanding balances or switching to a repayment mortgage.
This has led to a significant drop in the amount of outstanding mortgages which are purely interest-only, from 2.5 million in 2012 to 2.2 million in the present day.
The decline has been attributed to an improvement in communications between lenders and borrowers.
Go further: What is an interest-only mortgage? – find out if this product is suitable for you
Is an interest-only mortgage right for you?
Interest-only mortgages tend to involve lower monthly repayments, but you’ll pay more interest overall compared to a repayment mortgage. You will also need to be able to demonstrate a solid plan for paying off the capital at the end of the term.
Lenders have become more wary about granting interest-only mortgages in recent years. Some have stopped offering them to new customers altogether, partly to due to lack of demand.
What’s more, the criteria to be eligible for an interest-only mortgage may well become stricter as a result of the Mortgage Market Review (MMR).
However, if you’re likely to be earning a lot more money in the future than you are now (because you’re a junior doctor or a lawyer, for example), these products could still be more appealing than a repayment mortgage.
What to do if you’re struggling to repay your interest-only mortgage
Lenders have been stepping up moves to check up on interest-only mortgage holders to ensure their repayment plan is going smoothly.
If you believe you may be unable to pay off the capital in full, you should get in contact with your lender as soon as possible.
You may be able to extend the mortgage term or switch to a repayment mortgage.
Go further: Repayment shortfalls – we suggest options for those who can’t agree new terms with their lender