Endowment mortgages were the first to meet their demise as people lost a good deal of confidence in the ability of their policy to generate sufficient funds to repay the original loan.
Instead homeowners looked to repayment mortgages to plug the gap endowment mortgage had left, however these are also now seeing a decline in popularity with the market share dropping from an impressive 70 per cent in 2003 to only 58 per cent now.
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The new kid on the mortgage block is then the interest-only mortgage, now accouting for 26 per cent of the lending market. Interest-only mortgages allow borrowers to manage their repayments in an entirely different way, only paying off the interest accrued on their debt and not actually tackling that.
John Heron, managing director of Paragon Mortgages, explained: Repayment mortgages remain the mortgage of choice for owner occupiers. The interest-only sector has grown both with house prices and buy to let.
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Interest-only mortgages are ideal for buy-to-let investors who benefit by maintaining gearing and at the end of the term, have the choice to either re-finance or sell the investment property to pay back the loan. However, the owner-occupier must be more vigilant when opting for an interest only mortgage. Without the flexibility of being able to sell the family home to repay the loan at the end of the term, it is vital they ensure there is a repayment vehicle in place.
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