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RBS and NatWest abolish interest-only mortgages to force borrowers onto repayment deals

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State-backed Royal Bank of Scotland has become the latest High Street giant to abolish interest-only mortgages for homeowners. It follows hot on the heels of Nationwide and Co-operative Bank, who stopped handing out these once popular loans earlier this year. Many other rival major lenders have also axed interest-only, or dramatically cut back on who they allow to borrow this way.

 

However, most of these moves came before the release of the Financial Services Authority’s Mortgage Market Review, which made it clear that it believed there was still a place for interest-only borrowing, as long as it was assessed properly. The in-depth report, however, highlighted huge problems in the mortgage system, due to the widespread selling of interest-only mortgages throughout the 2000 to 2007 lending boom, without any checks that borrowers could pay them back.

 

Interest-only mortgages require borrowers to repay only the interest on their home loan each month. This lowers monthly repayments. Instead of paying some of their debt off each month, homeowners are supposed to put aside enough savings to repay their initial debt in one lump sum. But hundreds of thousands of homeowners have failed to do this — leaving them with loans they cannot afford to pay off. Over the next nine years 1.3 million interest-only loans worth £111 billion are due to be repaid.

 

 

Read more: http://www.dailymail.co.uk/money/mortgageshome/article-2239682/RBS-NatWest-abolish-mortgages.html#ixzz2DXWsVrSP


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