In a recent announcement, Lloyds Bank indicated that it planned to extend interest-only mortages up to the reduced amount of ?500,000. This is in keeping with an increasing trend among mortgage providers.
Other institutions such as Nationwide are also reviewing their interest-only mortgage ranges. Santander, for example, has also significantly cut its loan-to-value percentage by 10 per cent.
This has led to the question of whether interest-only mortgages are on their way out of the UK market. FinancialAdvice.co.uk examined the question, along with some possible reasons for the phenomenon.
One major issue is that interest-only mortgages also require other investment vehicles, such as endowments. Payments are then made into these investments with the purpose of building capital to cover the value of the initial mortgage.
The main problem with such a system is that the additional investment vehicles often do not increase sufficiently to cover the original mortgage. As a result, the homeowner is ultimately required to make significant additional payments.
This has been an increasing problem over the last few years, especially in the light of the economic crisis in the country. Higher interest-only mortgages are therefore increasingly seen as an unviable option, especially for new entrants to the housing market.
To cater for the changes in the economy and the demands of new home buyers, large mortgage companies such as Lloyds Bank, Nationwide and Santander are reviewing their interest-only mortgage packages to either reduce them or replace them with more viable options.
The general opinion appears to be that others will soon join this continuing trend.
