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Is the UK mortgage market turning?

Over the last few days it has become more and more apparent that competition in the UK mortgage market is increasing. However, on the flipside of the coin it is also becoming more and more apparent that mortgage companies are looking to reduce their risk. We have seen the likes of Lloyds Bank amending various conditions attached to interest only mortgages with many experts believing that these potentially risky mortgage arrangements could be phased out in the UK.

Even before the UK recession a number of interest only mortgage holders had experienced the pain of the downsides of these arrangements. In simple terms, holders of an interest only mortgage are only obliged to cover interest payments on a monthly basis although further payments must be made into an agreed investment vehicle to cover the capital repayment at the end of the mortgage term.

In theory, depending upon the rate of inflation and the rate of investment return over the length of the mortgage, it should be possible to use not only the payments themselves but also investment returns in the future to cover the outstanding capital repayment. However, over the last few years many people have seen their capital repayment schemes fall in value with many left to cover the shortfall.

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