An interest-only mortgage has been launched by Gen H to provide an affordability boost for borrowers, including first-time buyers.
Interest-only mortgages allow homeowners to pay the interest on the loan only, making the repayments cheaper.
The new product from Gen H, which is being launched in three stages, is now available via selected brokers for ‘financially-savvy’ first-time buyers, home movers and those remortgaging.
Young professionals and self-employed first-time buyers are the target customer as the mortgage will allow them to prioritise homeownership and saving or investment goals.
However, the main aim is to provide a mortgage which can ‘close gaps in affordability’. Gen H said, where borrowers have a credible repayment strategy for the loan, an interest-only mortgage can create the equivalent of a 10% to 15% boost in affordability over a 30-year term. It could make the difference, it said, between staying locked in the rental cycle and finally owning a home of your own.
It is available to borrowers at a loan-to-value (LTV) of 80% so customers must have a deposit or equity of at least 20%. They must also have a minimum household income of £50,000.
Rates start at 5.09% for those borrowing at 60% LTV. The term can run to the eldest borrower’s 75th birthday or retirement, whichever is earlier. Acceptable repayment vehicles include sale of the mortgaged property (max 60% LTV + min £200k equity), sale of another property, investments, and pension, with regular savings, cash and bonus income coming soon.
Pete Dockar, chief commercial officer at Gen H, said with the current housing affordability challenges it wanted to consider how familiar tools could be used in new ways.
“Interest only is a perfect example,” he said. “An interest-only mortgage can spell the difference between staying locked in the rental cycle or accessing homeownership and building meaningful wealth over time.
“What’s more – too often we expect aspiring buyers to either save or own, but for some, interest-only can be the tool that lets them do both – while boosting affordability at the same time.”
What do the experts say about the new interest-only mortgage?
There has been a mixed reaction to Gen H’s new interest only product. Whilst many brokers are pleased to see a product which addresses affordability constraints, others are wary of a mortgage where borrowers are paying back only the interest and not chipping away at the loan itself.
“A thoughtfully designed solution”
Nicholas Mendes, mortgage technical manager at John Charcol, was positive, describing it as the ‘product launch of the year’.
He said: “It’s encouraging to see a lender take a fresh approach to interest-only lending that reflects the realities of today’s buyers.”
Then added: “Gen H has introduced a thoughtfully designed solution to support home movers, remortgagers and, crucially, first-time buyers at a time when affordability remains one of the most pressing issues in the UK housing market.
“With house prices still high and rents continuing to rise, many borrowers are finding it harder than ever to make the jump onto the property ladder. Interest-only, when offered with clear criteria and a well-defined repayment strategy, can provide a meaningful and sustainable alternative for those who may be financially secure but underserved by full repayment models.”
Mendes continued: “It is important that borrowers do not dismiss the idea based on past assumptions. Interest-only can be a valuable solution, but only if it is properly understood and supported by tailored advice. That is where brokers play a vital role, helping to assess long-term plans and ensure the product fits the individual, not just the affordability gap.”
“Use with caution…”
But Ben Perks, managing director at Orchard Financial Advisers, speaking via the Newspage agency, was wary. He said: “Interest-only is like the Crack Cocaine of the mortgage world. Once you’re on it, it can be really difficult to get off.
“Borrowers adapt lifestyles and get used to the lower payments. This kind of product needs to be used with great caution by first-time buyers and a robust repayment strategy needs to be evident.”
Meanwhile, Simon Bridgland, broker at Charwin Private Clients, also talking to Newspage, advised borrowers considering the product to be vigilant. “Whilst in theory interest-only is a super affordable option for home buyers,” he said, “users should walk into it with a little fear and trepidation.
“History books are still being written about the very real tale of homeowners close to or at the end of the mortgage term with no viable option of loan repayment.
“Things that are totally out of the borrower’s control will trash career plans and incomes intended for long term repayment strategies. Gen H will need a very tight leash on things if it isn’t to turn into a future horror story.”
