Over recent months, finding an interest-only mortgage has become increasingly difficult. Many lenders have tightened their interest-only criteria while others including the Royal Bank of Scotland, Nationwide and the Co-operative Bank have abolished interest-only lending altogether. And new Financial Services Authority rules set to come into force next year will also further restrict interest-only lending.
However, a major lender has bucked this trend by launching a new product that offers a three-year interest-only deal. The Clydesdale Bank has launched a product which it says is ‘unique' and could help wealthier first-time buyers afford a new home loan.
At the end of this three-year period the loan reverts to the bank's Standard Variable Rate (SVR) - currently 4.95% - on a repayment basis for the remaining life of the mortgage. Applicants will need to prove that the loan is affordable on a capital and interest basis. The loan is available to a maximum of 80% loan-to-value and for loans of between £300,000 and £1million. Rates for the bank's low-start mortgage start at 3.09% and rise to 4.49% at 80% lending. There is a £999 fee for loans up to £500,000 and a £1,499 fee for loans to £1million.
Mortgage Strategy reports that the Bank describes the product as ‘unique', and says that the low-start mortgage is designed to address a need within the market, while appreciating the need to ensure repayment of the capital. Clydesdale Bank's head of mortgage distribution Fred Sharp says: "There is a clear need for interest-only mortgage products in the marketplace, but this has to be in the right circumstances and with the right support - financially and advisory."
Keith Osborne, editor of whathouse.co.uk, welcomed the move. He says: "It is good to see that not all lenders are simply abolishing interest-only lending. It is an excellent way for some people to arrange their home loan and Clydesdale's product demonstrates that it is possible to take a responsible view towards this type of lending. Borrowers interested in the scheme should contact a mortgage broker in the first instance as both the Clydesdale and Yorkshire Bank brands will no longer accept interest-only deals through their branch network."
Click here to find out more about how whathouse.co.uk can help you find the right mortgage.