Covid-19 has completely changed the scenario of the mortgage market. In the search for better financial management, the borrowers have shifted their priority in mortgages. There are varied reasons for that, and they all relate to the desperate need for attaining financial needs.
Interest-Only is Easy To Manage
The monthly instalments include only interest and not the principal amount. It makes the monthly repayments much affordable for the borrowers. With spoiled finances, the mortgagors are not able to manage their expenses in limit financial resources. Their money mess is more significant than ever as it is unprecedented.
Around 61% of mortgage deals are interest-only now. In March 2020 it was 48%
Terms And Conditions For The Borrowers
The people indeed want to take the interest-only mortgage, but they need to cross the affordability check stages. Currently, the mortgage industry is on its toes on the lending policy. Mortgage companies are in no mood to make any adjustment in their lending policy.
Every lender has instructed its online mortgage broker to leave no stone unturned on the part of income assessment. There is no second chance for the borrowers now, and when it comes to interest only, the dos and don’ts are stringent.
Following things come under consideration while scrutinizing the financial conditions of the applicant –
- The current income status of the applicant. Those who are back to their job can get the funds quickly. Those who are on furloughed income can also attain funds, but only if they can present the proof that the company will retain them.
- The applicant needs to have a repayment plan that is possible to justify. The complete payment happens at the end of the tenure. At that time, the lender cannot manage to bear the burden of enormous risk. If the applicant fails to describe its repaying capacity on the repayment part, there is no chance of approval, and it is the bitter but the ultimate reality of the market.
- The personal circumstances of the person will also matter as many are planning to move to other places in the UK. Some are getting back to their families, and some are moving to the cheaper rental houses. The applicants who are moving to the new place can be challenging to detect.
Funds For The Short-Term Mortgage Needs Only
Interest-only mortgages are usually suitable for short-term mortgage needs. If an applicant is planning for this type of mortgage for a significant need, they may cross some complications. However, some lenders have also made clear that if the applicant is backed-up by a strong repaying capacity, the significant amount is possible.
As the Always Higher Deposit Is The Game-Changer
There is no second doubt on the fact that deposit is always decisive in the mortgage and property buying decisions. In the case of interest-only mortgages, the bigger down payment is playing a significant role in earning approval.
The borrowers are also in favour of accumulating significant funds to provide a big deposit. Through that, they can avoid the higher interest rate and can also manage the monthly instalments. Already the mortgage market of the UK is asking for a large size down payment because more top LTV products are less in number now.
The above scenario explains the current situation of the borrowers as well as the mortgage industry. The good thing is that both are working on a mutual solution that is interest-only mortgage deals. Until the situations get normal, it is not wrong to work on this strategy.