Two banks to offer interest only mortgages again

Graham_Devon

Dubbed "low start" deals, Yorkshire and Clydesdale Bank are releasing an interest only mortgage product.

The product consists of a 3 year interest only deal, halving the monthly repayments for the inital 3 years.

This has given scope to mortgage brokers suggesting that other banks will be quick on the heals looking into offer interest only deals once more.

It's understood that one building society already plans to offer a bigger version of this, allowing interest only for the first five years of the deal.

Ray Boulger says he is confident that more and more lenders will follow suit, suggesting that interest only deals are suitable for those wanting to escape the rental market. He states that interest only deals could halve the monthly payment, and even if they do not have a repayment plan, they will still be better off as they will have paid less than rent.

Every rose has a thorn though.... apparently this will increase pressure to increase interest rates....

During Mervyn King's time as governor it was implicit that there would be no tightening of monetary policy for some time to come and that helped keep bond yields and sterling low. Since the implicit commitment was made explicit on 7 August, both the bond market and the foreign exchange market have brought forward the date when they think the Bank's monetary policy committee will push up the official interest rate from its record low of 0.5%.

Why? Because the City has taken a quick squint at the property market, where the interest-only mortgages that were a feature of the previous boom are making a comeback, and come to the conclusion that the UK is in the early stages of a credit bubble.

That, coupled with a slew of upbeat economic data, has convinced dealers that the Bank will need to cool things down long before the 2016 date pencilled in by Threadneedle Street in its recent inflation report.

http://www.theguardian.com/money/2013/aug/19/interest-only-mortgages-return

CLAPTON

well it would be surprising if one believed that the financial crisis was caused by defaults on UK residential mortgages

but as it wasn't, it isn't

somethingcorporate

It's only a matter of time until we'll be able to take out 100% mortgages and an additional 30% unsecured!

Turnbull2000

Give it another 12-18 months, and other lenders will begin offering proper interest only mortgages in order to compete. By 2015, 100% mortgages should be back too, as lenders seek to offer 'innovative' mortgage products in a battle for customers desperate to buy as government initiatives continue to pump up the market.

A few bears on here sneared at me for predicting double digit UK HPI for 2013-2013 year-on-year. Do they still believe I'm wrong?

Graham_Devon

Turnbull2000 wrote: »

Well, it's a start. Give it another 12-18 months, and other lenders will begin offering proper interest only mortgages in order to compete. By 2015, 100% mortgages should be back too, as lender seek to offer 'innovative' mortgage products in a battle for customers desperate to buy as government initiatives continue to pump up the market.

What could possibly go wrong?

chucky

I don't have a problem with Interest Only mortgages and don't see why anyone else should have a problem with them. Maybe that's because I know I have to repay the debt and have put into place a mechanism to do it.

Thrugelmir

Graham_Devon wrote: »

Dubbed "low start" deals, Yorkshire and Clydesdale Bank are releasing an interest only mortgage product.

Only interest only for the initial 3 year term. Best rates require 40% deposit. Maximum LTV is 80%.

After 3 years. Mortgage reverts to repayment basis at interest rate of 4.95%. So may not appeal to everyone,.

Loughton_Monkey

chucky wrote: »

I don't have a problem with Interest Only mortgages and don't see why anyone else should have a problem with them. Maybe that's because I know I have to repay the debt and have put into place a mechanism to do it.

A novel idea....

What I would like to see is that the mortgage application goes into the bank vaults along with a video of the applicant actually swearing on oath that they understand that they need to pay back the capital.

Then if (in 20 years time) we get raving nanny-state socialists (i.e. the BBC, or Guardian) ranting that these poor people were 'conned' or 'mis-sold' then the videos can be trawled out, the debtors can be evicted and pilloried, while the journo's can be boiled in oil.

Thrugelmir

Loughton_Monkey wrote: »

Then if (in 20 years time) we get raving nanny-state socialists (i.e. the BBC, or Guardian) ranting that these poor people were 'conned' or 'mis-sold' then the videos can be trawled out, the debtors can be evicted and pilloried, while the journo's can be boiled in oil.

According to NRAM 80% of their borrowers have no repayment plan for their mortgage. So no doubt the stories will flow once we hit the 20's.

chucky

Thrugelmir wrote: »

According to NRAM 80% of their borrowers have no repayment plan for their mortgage. So no doubt the stories will flow once we hit the 20's.

That's probably 0.00000000000008% of the mortgage market but at least it will justify a whole thread on this forum that we are economically doomed due to over-leveraged debt junkies.

CLAPTON

the problem here is with supply of new houses

if this additional money simply chases the existing stock then there will be a significant increase in house prices with little overall benefit to either individuals or the economy