Interest only mortgages, once shunned, are making a comeback in the housing markets in the UK and other major countries as well. In a report from theguardian.com, the recent decision by mortgage lenders to reject offers to pay principals on their loans have allowed these instruments its return to the market.
These kinds of deals, which were the standard during the heyday of the early part of 2000, allowed people to keep mortgage repayments at a low price, as only the interest is paid and not the loaned amount or principal. Most often, this kind of mortgage was taken out by individuals having financial or liquidity issues.
Towards 2007, nearly one-third of all mortgages were interest only and the majority had no repayment plan for the principal amount. Many bet that the increase in property values would help in repaying the loan. Then the 2008 financial crisis occurred which lead to many stringent measures being put in place, such as a stoppage of the interest-only mortgage scheme.
In a report from home.bt.com, it has been confirmed that the increase of interest only mortgages are on the rise, mainly due to lenders easing the restrictions on obtaining them. Amongst the top banks modifying their requirements include Barclays and Leeds Building Society, which would soon be followed by other British financial institutions. While many are opening their purses again to these kinds of loans, others are pretty skeptical of the effects it may have in the overall scheme of things.
This though does not mean the mortgage scheme is accepted. It was seen that this contributed to the credit bubble of the recent years. Current estimates of the Financial Conduct Authority said that there are about 600,000 interest only mortgages in circulation today and they are set to be due by 2020. Unfortunately, half of these mortgagees have no means to pay back the principal on the loan.