Interest-only mortgages – the customers you need to look out for
Leeds Building Society accepts sale of property as a repayment method for certain interest-only cases, but is this method suitable for your interest only customer? Whilst the Intermediary Mortgage Lenders Association (IMLA) has revealed that the proportion of brokers facing difficulties helping this type of client has fallen 15 percentage points year-on-year to 39%, challenging cases do remain. In our latest blog, we take a look at the types of interest-only customers you might come across as a broker.
The ‘Endowment’ borrower
This group of customers are primarily older borrowers who took out an interest-only mortgage on an endowment basis in the mid 1990’s to late 1990’s. Some of these borrowers surrendered their Endowment policy and others often found they had a shortfall, but omitted to secure any other repayment vehicle to pay off their interest only mortgage, leaving some reaching the end of their mortgage term with little means to repay.
These customers are relatively younger than the endowment mortgagee, and have consciously chosen interest-only mortgages for a number of reasons, for example to leverage assets to their advantage or to manage their incomes and outgoings.
This customer group contains more self employed people and those with more variable earnings than other groups, as well as including heavy credit users and those who have encountered periods of payment difficulty. Therefore there are two distinct groups within these affordability strategists; those who are using interest-only as a highly credible repayment strategy and those who are using it as a short-term solution to help with other financial difficulties.
The Interest-Only Vulnerable
The Interest-Only Vulnerable is older with lower incomes. These customers tend to be risk-averse and largely cautious, but despite budgeting carefully tend to live within their means with limited capacity to save. These Interest Only borrowers in the main believe that having maintained their mortgage commitments throughout its term, means that they will have paid off their mortgage and may not have a repayment vehicle or strategy in place at the end of the mortgage term.
High Net Worth Strategists
These savvy, high income and high net worth borrowers are using interest only products to effectively leverage their incomes and considerable property assets. This customer group contains a high proportion of self-employed individuals and can have highly variable incomes, which are supported by property wealth and rental income. This group has seen the most benefit from the interest-only product and used it to their greatest advantage. They are also significantly older than other interest-only borrowers with more than half being over 55.
To discuss interest only products and the customers you might encounter as a broker, contact our team by calling 03450 50 5555.
We may monitor and/or record your telephone conversations with the Society to ensure consistent service levels (including colleague training).
 IMLA - Intermediary Lending Outlook, February 2016