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Interest Only Mortgages FSA Makes Move To Protect Homeowners
bbey recently stated that will face a shortfall at the end
over 25% of homeowners of their mortgage term. It is now
decide to take out an necessary for lenders to see firm
interest-only mortgage. It's not evidence from new borrowers that
hard to see why – the monthly they have set up a savings
payments are significantly less, vehicle to cover the capital.
just look at this example based Previously, borrowers just had to
on a 25 year £125,000 mortgage at state their intention, for
5%. The interest only mortgage example, they would sell the
will cost £525 per month - but property to raise the capital.
the repayment mortgage is £735 However, that will no longer be
per month – an additional £210 a good enough. The lender will need
month – that's a lot of money! to see a proper plan set up –
they are not allowed to set you
At the root of the issue are the up on an interest only mortgage
first time buyers – they simply without that proof. If they did,
can't afford the repayment they would be going against
mortgage, so take the interest regulations and would be
only option as an easier way out. penalised by the FSA.
However, the interest only
mortgage must be accompanied by a The lender will now need to see
suitable savings vehicle to cover proof of a personal equity plan
the outstanding capital at the (PEP), an Individual Savings
end of the mortgage term, and it Account (ISA), or evidence that
is this that many are failing to 25% tax-free cash from a personal
do – as many as 37% in fact. pension plan (PPP) will
ultimately cover the outstanding
Now the Financial Services capital. It will no longer be
Authority (FSA) has stepped in, good enough to say that you will
concerned that many homeowners set it up – you must show that
you have already sorted it out! On the whole, mortgage advisers
will not recommend interest only
In the short time that the new mortgages, agreeing that they
regulations have been in force, represent too much risk.
individual lenders are already Repayment mortgages guarantee
making their own interpretations that all monies owed are paid at
of the rules. The Nationwide the end of the term, but a
Building Society is not allowing separate savings vehicle could
borrowers to use a future fail to live up to expectations,
inheritance, or future pay rises and you could end up with a
as a basis on which to set up an shortfall. Most mortgage advisers
interest only mortgage. will recommend a repayment
Similarly, expected bonuses will mortgage to bypass that risk.
not be good enough either, not
unless you can prove that you On the other hand, the interest
will definitely be receiving only mortgage is a useful short
them. Bonuses based on term solution, and if you can
performance can't be guaranteed, assure your mortgage adviser that
so would not count. you intend to switch over to a
repayment mortgage as soon as you
People that already have their can afford to, they may well
own home will not be subjected to support your decision. Even in
the same rigorous checks however. this case however, you will still
As long as you are borrowing less need to provide the same details
than two thirds of the new as if you were intending to stick
property's value, and you have with it for the full term. You
£150,000 of net equity in your simply won't be able to get an
current home, then Nationwide interest only mortgage without
will accept you as a customer. providing the right paperwork.
The best all round solution is to you to repay 10% or more in a
get an interest only mortgage single year. Of course, if you
that allows you to overpay. So if can't afford it, then you don't
you find that you have some extra have to – at least you have the
capital, you can put it onto your choice. Just make sure, before
mortgage, and reduce the capital. signing up, that you can overpay
These types of mortgage are without penalty.
widely available, and many allow
About the Author:
Visit Scrouge Life Insurance to learn more about uk mortgages, loans
Source: www.isnare.com |
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