However, in light of recent changes to interest only lending, Springtide consultants have noticed that many are reluctant to switch to alternative repayment options owing to concerns around the high fees attached to these lower rates.
Typically, the monthly costs increase fairly substantially when clients switch from interest only to repayment mortgages, however with mortgage rates having reduced so much the difference often is not as bad as people suspect. For example a £150,000 mortgage at 4.5% on interest only will cost £562 per month, whereas the same mortgage at 2.5% will cost £673 per month on a 25 year repayment mortgage. Borrowers need to factor in set up and exit costs when looking at this.
Knight says:
"Banks have become much tighter with regards to their criteria for interest only mortgages. Many have pulled out of the market altogether and will not even offer the option. Whilst this can cause issues for many existing borrowers we have found that many of our clients have been pleasantly surprised by the number of options that are still available. This coupled with the lower rates often allow borrowers to make the change without substantially increasing their monthly costs.
"There are some great rates on re-mortgaging at present. We recently secured a client a rate of just over 2pc on his mortgage when he had previously been paying nearly 4.5pc overall. The client was able to switch from an interest only to repayment mortgage, extend the term to his anticipated retirement age and save money on his monthly mortgage payment, which is worth taking into account if you are one of the many people struggling with increasing inflation and managing household budgeting more effectively."
