Many mortgage prisoners are trapped on interest-only mortgages, which as the name suggests, mean that they only repay the interest they owe each month rather than any of the capital – which must be repaid at the end of the mortgage term. However, at the time many mortgage prisoners took out their interest-only mortgages they did not have to show clear evidence of how they were going to repay the capital. Tighter lending rules now mean that this evidence is now required which has left thousands of interest-only borrowers unable to remortgage.
Under the FCA’s latest rules however, lenders are allowed to adopt more “proportionate” checks that should allow interest-only customers to switch to a new deal, although this doesn’t seem to have been mildly adopted by lenders, resulting in many people still finding it impossible to remortgage.
Interest-only mortgage customers also have the option of retirement interest-only mortgages. These are designed specifically for older borrowers and rather than lasting for a specific term, they run indefinitely until the property is sold, or the homeowner dies or moves into long-term care.
Borrowers do still have to make monthly interest-only payments, so they will need to demonstrate that their income will cover these costs, but will not necessarily have to demonstrate how they will repay the capital at the end of the term. Lenders offering interest-only mortgages are often building societies and include Leeds Building Society, Nottingham Building Society, Nationwide Building Society and Bath Building Society. There’s no minimum age requirement for interest-only mortgages, but they are typically aimed at older homeowners in their 50s or 60s who are likely to find them easier to qualify for than a standard interest-only mortgage.
Learn more about how retirement interest-only mortgages work in our article How retirement interest-only mortgages work.
If you’re looking for mortgage advice, we’ve partnered with an experienced mortgage advisor to offer Rest Less members high quality advice on standard, retirement interest-only and buy-to-let mortgages. You can book a free, no-obligation call back here.