There has been a ‘notable spike’ in demand for interest-only mortgages in July as borrowers struggling with repayment hikes look for ways to live within their means.
New data from Legal & General revealed searches by brokers for interest-only deals on its mortgage research platform had increased by 11% between June and July. This followed a 53% increase between May and June.
It comes directly after the introduction of the Mortgage Charter in June. A number of mortgage lenders signed up to the charter and by doing so they pledged to provide support for any customers who are struggling with repayments.
This support includes finding short-term alternatives their current repayment methods – for example, taking a mortgage holiday or switching to an interest-only arrangement for up to six months.
Interest-only deals, as the name suggests, require the borrower to pay the interest back only, so they will not repay the loan itself.
This offers a short-term respite to full payments but it does mean the loan will need to be repaid further down the line and this could impact future repayments.
Jodie White, of Legal & General Technology said: “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.”
Lenders have been gradually adjusting fixed-rates downwards over the last two weeks, despite the Bank of England raising interest rates to 5.25% in early August.
According to the latest data from Moneyfactscompare, average fixed rate mortgages are continuing to fall in price this week. The average two-year fixed rate is currently 6.73%. This compares to 6.76% on Friday last week.
However, with energy prices continuing to create financial pressures for households and further interest rate rises expected, these small adjustments to fixed rates are unlikely to make a big difference.
If you are concerned about making mortgage repayments the advice is to speak to your lender as soon as possible to find a solution. You can find out more about how to do this plus learn about the support available here.
