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CML: Interest-only deals a logical response to credit crunch
28 March 2008 11:30
It is not surprising or necessarily problematic that more people are choosing interest-only mortgages due to the credit crunch, the Council of Mortgage Lenders (CML) has stated.
CML data indicates that the proportion of new mortgages accounted for by interest-only deals without a specified repayment vehicle rose from 21 per cent in 2006 to 24.1 per cent last year and then to 24.6 per cent in January 2008.
However, communications manager Bernard Clarke pointed out that in many of these cases borrowers do have a capital repayment plan but have not informed their lender of it, or they recognise the need to establish one during the course of their mortgage.
He claimed that lenders would not be overly wary of this trend as long as borrowers are taking this option for valid reasons and readdress the situation when they remortgage, while noting that a large share of these deals are accounted for by the buy-to-let sector.
Mr Clarke also observed that interest-only products were far more popular in the 1980s when over four out of five borrowers had endowment mortgages, although he added that since then Britons have tended to prefer the certainty of repayment deals instead.
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