According to an article in FT Adviser, which draws on research from Opinium, 44 per cent of mortgage brokers have seen an increase in demand for interest only mortgages. As a Maidenhead mortgage broker, our own experience is broadly in line with what appears to be a national average.
Over the last two months alone, we’ve seen enquires from those looking to apply for an interest only mortgage increase by over 50 per cent.
The key driver? Increasing costs and a desire for homeowners to lower their monthly payments, of course.
But how easy is it to get an interest only mortgage? And perhaps more importantly, is it worth getting an interest only mortgage?
The benefits of interest only mortgages
The main benefit of interest only mortgages is that they’re more affordable in the short term. By simply paying off the interest – as opposed to the interest and the capital – monthly mortgage repayments significantly decrease.
So, if you’re struggling to juggle mortgage repayments alongside household bills, car payments and day-to-day living expenses, then an interest only mortgage is a great way in which to reduce what for the majority of people is likely to be their largest overhead.
However, an interest only mortgage’s main short-term benefit also happens to be its biggest long-term disadvantage, too.
The disadvantages of interest only mortgages
With an interest only mortgage, you’re only paying off the interest.
Our team of Maidenhead mortgage advisers consistently secure our clients mortgages for an average value of £300,000 – so let’s use that figure as an example.
If you borrow £300,000 over a period of 25 years, then at the end of that period – if you’ve had an interest only mortgage for the whole time – you’ll still owe £300,000.
Prior to the financial crash in 2008, there were a lot people on interest only mortgages. And, as house prices were continually (and back then, exponentially) rising, homeowners took a degree of comfort in the fact that whilst they weren’t paying off the capital, their equity was still growing.
Today, however, as house price growth slows, being over-reliant on equity growth to pay off the mortgage at a later date perhaps isn’t the sure bet it once was.
Pros and cons of interest only mortgages
There’s a lot to consider when it comes to getting an interest only mortgage – not least the fact that they’re not as easy to get as they used to be before 2008.
Whether you’re considering a short-term interest only mortgage or a long-term interest only mortgage, what’s important is that you seek expert mortgage advice before committing to anything.
And, as expert mortgage advisers in Maidenhead, why not start with us.
Thinking about applying for an interest only mortgage? Contact our team of Berkshire mortgage brokers on 01628 560820 or email enquiries@altonmortgages.co.uk.