Accord Mortgages, one of the UK’s leading mortgage lenders, recently announced that it is adjusting its criteria for interest-only loans. This change comes as a result of the Financial Conduct Authority’s (FCA) review of the mortgage market, which has highlighted the need for lenders to take a more responsible approach to lending.
Interest-only loans are a type of mortgage where the borrower only pays the interest on the loan each month. This means that the borrower does not pay off any of the capital borrowed until the end of the loan term. This type of loan can be attractive to borrowers as it can offer lower monthly payments than a repayment mortgage. However, it also carries a higher risk for lenders as there is no guarantee that the borrower will be able to repay the capital at the end of the loan term.
In response to the FCA’s review, Accord Mortgages has announced that it is tightening its criteria for interest-only loans. The lender will now require borrowers to provide evidence of a credible repayment plan before they can be approved for an interest-only loan. This could include providing proof of savings or investments that can be used to repay the capital at the end of the loan term.
Accord Mortgages is also introducing a new affordability calculator which will help borrowers understand how much they can afford to borrow. The calculator will take into account a range of factors including income, outgoings and other debts when assessing affordability. This should help borrowers make more informed decisions about their borrowing and ensure that they are not taking on more debt than they can afford.
The changes announced by Accord Mortgages are part of a wider trend in the mortgage market towards more responsible lending. The FCA’s review has highlighted the need for lenders to take a more cautious approach when assessing borrowers for mortgages and this is something that Accord Mortgages is responding to. By introducing stricter criteria for interest-only loans and introducing an affordability calculator, Accord Mortgages is helping to ensure that borrowers are not taking on more debt than they can afford.