12 Dec, 2023/ by Homeward Legal /Remortgage
For the last couple of years or so in particular, money has been tight for many people. This is because of a number of contributory factors, such as the onslaught of high inflation combined with incremental rises in the Bank of England base rate (and the knock-on impact on mortgage repayments on certain products), governmental monetary management and several other factors over which many have little control impacting the household bills and therefore their budget.
This means that anyone looking to move home might be having second thoughts as they look at their income and the likely cost of furnishing the remortgage repayments each month.
Therefore, for the homebuyer looking for the best deals so that they might keep control of the costs associated with the whole moving process, one area that needs specific and hawklike focus is the knotty problem of the choice of mortgage product.
What are interest-only mortgages?
Interest-only loans are a good way of reducing monthly repayments significantly when compared with the payments for a standard repayment mortgage.
Any reduction in monthly costs to service the mortgage naturally protects your new home better from the risk of repossession by the lender. This might be the case if you fail to keep up repayments on the larger amounts per month on the standard mortgage loan.
But it doesn't eradicate the risk, of course.
As the name ‘interest-only' implies, you will only be obliged to pay the amount of the accrued interest on the loan each month.
However, before you consider this as an option, you should be aware that there are caveats associated with an interest-only mortgage. At the end of the period of the loan (or whenever you sell the property if it's before the end of the mortgage term), you will be required to pay the full lump sum remaining of the mortgage in one go.
There is also a higher risk of negative equity too, as you will be more exposed to the variances in house prices over the time you are dealing with the mortgage.
Because the risk is higher to the lender, the total of the interest paid on an interest-only mortgage will necessarily be higher than the total you would have paid on a standard repayment mortgage.
As the Legal & General article also points out, this rise in attention to interest-only mortgages comes in the wake of the Mortgage Charter, coinciding with the Chancellor's announcement on 26 June to support borrowers who are struggling with the cost-of-living crisis and finding difficulty keeping up with their monthly repayments.
As Jodie White, Head of Mortgage Products & Transformation, Legal & General Technology, commented:
“The uptick in searches for Interest Only mortgages certainly characterised July and can be linked to the announcement of the Mortgage Charter the month prior.
“Borrowers are leaning on this support as the market continues to grapple with the new interest rate environment and wider cost-of-living pressure.
“We have since seen swap rates and interest rates stabilise, providing hope for more positive August and September figures.
“With many of us returning from a well-deserved summer break, it is an opportune time for advisers to reassess the technology at their disposal to help line up a successful final quarter.”
Is an interest-only mortgage right for you?
Nevertheless, in spite of the stated restrictions, for those able to deal with their finances to manage the interest-only mortgage, it is a good option to minimise the amount they are required to pay each month.
Because you'll be required to repay the mortgage lump sum if you take out an interest-only mortgage, you'll need to budget for that eventuality.
One option is to consider putting a certain sum of money by each month into a high yield savings account or ISA (although you're limited as to the top amount you can save to it). The interest accrued on the savings may help to pay for the increased mortgage interest payments each month, while you're building up the amount to furnish the lump sum of the mortgage.
As with all the options for the finances of buying a home, you should consider your options carefully and discuss it with your chosen mortgage lender before coming to a decision.
Once you've found your choice of mortgage product, no doubt you'll be looking for a quality conveyancing service that is competitively priced
That's where Homeward Legal can really help with affordable but quality conveyancing services! They will start work on your planned purchase and/or sale as soon as you agree to the quotation and appoint them to represent you.
Homeward Legal will also provide a quote that will not change - what you are quoted is what you pay for standard conveyancing process.
There are some unforeseen items that might arise during the purchase and/or sale, but the solicitor discusses these and their cost as they come up.
In addition, to protect the homebuyer further, Homeward Legal operates a ‘no completion, no fee' promise, which ensures that, should the purchase or sale not go through as planned to completion status, no payment is required.
Call to get your conveyancing quote started, or to discuss your concerns with your plans to move.
Or you can get a quick quote, using Homeward Legal's easy-to-use quote generator.