Private banks the answer to interest only

The New Year may barely have started but with two high-street lenders already tightening interest-only criteria, 2013 looks set to be a tough year if you require an interest-only mortgage. Yet while lenders are reining back on interest only, borrowers still demand it.

We have seen a significant increase in clients seeking interest-only options as several high-street lenders including RBS, NatWest, Nationwide and the Co-operative Bank, have stopped offering interest only to new borrowers. Other lenders have severely restricted their interest-only terms, meaning many borrowers no longer qualify.

The latest changes from Woolwich and Virgin Money are more tweaking the detail in terms of minimum loan sizes and maximum loan-to-values rather than abolishing interest only outright. But the conclusion is inescapable: interest only has become a niche product. It may be possible to borrow on interest-only terms via high-street banks but it is much trickier than in the past.

However, there is an alternative. The private banks continue to offer interest-only terms to clients who are wealthy or on track to become wealthy at some point.

If you have a remuneration structure with a significant element paid in annual bonuses or stock and share allocations, or there is a realistic and viable anticipation of a future capital event, or you will sell a property to pay off the capital, then it could make sense to borrow on an interest-only basis.

Anderson Harris

Anderson Harris is a multi-disciplined Mayfair-based property finance business, specialising in high-net-worth and ultra high-net-worth clients from the UK and overseas.

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