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Beginning of the end for interest only mortgages
16-02-2012
Author: Steven Michaels
Lloyds Banking Group has become the latest provider to become even stricter on its lending rules. This means that interest-only mortgages are more out of reach than ever before for borrowers this week.
The group, including Lloyds TSB, Halifax and Cheltenham & Gloucester has made the criteria for interest-only mortgages even tighter by limiting the types of assets they will accept to repay a loan at the end of the mortgage term.
This decision follows that of Santander who also insists that interest-only borrowers have to put down a 50% deposit or 50% equity in their homes. They were the first to make this decision and now it seems that other lenders will be following them.
Lloyd’s new rules state that they will no longer accept cash savings as a form of mortgage repayment and they now require a 20% margin of safety in other assets such as shares and ISAs. However unlike Santander the minimum deposit or equity required still stands at 25%.
This decision has come from recent past experience when house prices were climbing and banks were lending with no repayment vehicle in place. They relied on the property prices continuing to rise which would let borrowers pay off the mortgage at a later date. However, house prices dropped and many borrowers found themselves in negative equity and were unable to pay the debt.
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