30 Skyline | Relaunch Edition 1 | Winter 2021
The past decade may have been a turbulent time for Interest-only mortgages . Beyond those in the mortgage market , these products have suffered from a lingering association to the 2008 financial crisis , while within the sector a lack of product availability has also caused issues . For a long time in fact , intermediaries have been calling out for Interest-only solutions as an option for a specific type of client .
Now the market is seeing something of a renaissance and at Coventry for intermediaries we recently decided the time was right to relaunch an Interest-only offering . So what ’ s sparked this change ?
A new proposition
Jonathan Stinton
Head of Intermediary Relationships Coventry Building Society
While Interest-only products have sometimes been viewed as an option to help borrower affordability by reducing their monthly repayments , these options have always had a role to play for other borrowers too – namely high net worth clients .
Intermediaries will be aware of the benefits of Interest-only to customers , including the ability to reduce monthly repayments and allowing customers to free up funds which they can put to use elsewhere . Interest-only can be a tool to help a different kind of borrower who wants to better manage their overall finances . That role for Interest-only could be seen in the rising popularity of these options even before the recent pandemic . In August 2019 , data from Knowledge Bank showed that Interest-only was the third most searched term by intermediaries ( 1 ) .
At Coventry for intermediaries , we decided it was the right time to respond to this trend and refresh our range of Interest-only options . We believe that there is a segment of low risk borrowers with significant equity in their property that could benefit from an Interest-only solution . That ’ s why our products are built around a maximum LTV of 50 % and no minimum income requirements . Borrowers need to have at least £ 300,000 of equity in the property after the mortgage amount has been taken into account . Whether for customers looking to buy or remortgage , product transfer or seek a further advance , by choosing Interest-only over a repayment product the money they save can be freed up to be used in other ways .
Linking in with Offset
There is an even more innovative way that customers can maximise the benefits of an Interest-only mortgage though . Some of the most significant pieces of feedback we ’ ve seen from intermediaries on our Offset range has been the need for an Interest-only version of the product and at Coventry for intermediaries we responded to that feedback when we launched our new Interest-only range . By tying together with Offset , clients can effectively reduce their mortgage costs through their Offset savings , as they are only charged interest on the difference between their mortgage and their savings balance . Through Offset , borrowers also have easy access to their savings , giving them the flexibility to access funds as and when they need them . Alternatively , the savings used to offset their mortgage could even provide for an effective repayment vehicle when their Interest-only mortgage reaches the end of its term .
For example , Michael wants to switch to an Interest-only Offset product . He wants to borrow £ 110,000 and his home is worth £ 420,000 . Michael owns four Buy-to-Let properties and wants to renovate two of them . He has stocks and shares currently valued at £ 170,000 and £ 40,000 in savings . By offsetting the savings , Michael can reduce his Interest-only payments , while keeping available the funds he needs to make repairs to his portfolio of Buy-to-Let properties and using his investments to repay his mortgage at the end of the term .
Despite a turbulent past , Interest-only is now re-emerging as a real choice for a new group of borrowers . What was an option to help with affordability we now believe can be a relevant solution for intermediaries to recommend to low risk , high net worth borrowers .
To find out more about our new range of Interest-only solutions and read more examples of where they could help your clients , visit : www . coventrybuildingsociety . co . uk / intermediaries – selecting ‘ Products ’ and then ’ Interest-only products ’.
Source : 1 . https :// www . mortgagesolutions . co . uk / news / 2019 / 09 / 10 / interest-only-mortgages-most-searched-in-august-knowledge-bank /