Interest-only mortgages have increased their market share by 15% since 2003, and now account for 26% of all broker business, according to Paragon Mortgages.
Research conducted by Paragon also showed that repayment mortgages have declined in popularity, with market share falling from over 70% in 2003, to just 58% today.
Repayment mortgages became popular in the mid-1990s as lower inflation reduced confidence in endowment mortgage, with many people fearing their policies would not generate sufficient funds to repay the original loan.
John Heron, managing director of Paragon Mortgages, says: “Repayment mortgages remain the mortgage of choice for owner occupiers. The interest-only sector has grown both with house prices and buy-to-let.”
Heron also says interest-only mortgages are ideal for buy-to-let investors as they maintain gearing, and allow the borrower to either re-finance or sell the property to repay the loan once the term ends.
However, Paragon suggests that owner-occupiers should be wary of interest-only mortgages, as they do not have the same level of flexibility as buy-to-let investors. It is generally not desirable to sell a family home to repay the loan at the end of the term and owner-occupiers are advised to ensure that a suitable repayment vehicle is in place.
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