More lenders crack down on interest-only loans

Tuesday 21st February 2012

Leeds Building Society has joined Lloyds in cracking down on interest-only mortgages, whilst Abbey has announced further details.

Leeds has cut its maximum LTV on interest-only loans from 70% to 50%, where the repayment strategy is the sale of the property.

Leeds accepts only two types of repayment strategies – sale of the property, or an investment or savings vehicle. Changes in LTV have not been made to the latter. Also unaffected are buy-to-let loans.

Meanwhile, Abbey, part of Santander, has said that borrowers with existing interest-only mortgages will be able to port these to other properties – but only if they go direct.

This means that borrowers will potentially not get advice, and that brokers who arranged the loan through Abbey for Intermediaries will get no proc fee. Santander had already announced, on February 8, that it planned to chop the maximum LTV interest-only mortgages from 75% to 50%.

Lloyds last week announced a severe pruning of the repayment vehicles it would accept for its interest-only mortgages. For example, it will no longer accept cash savings, including ISAs, it has restricted the use of stocks and shares, and has said that pensions must have a minimum current value of over £1m.

Lenders are tightening their interest-only criteria amid fears that they will be at risk of being penalised by the regulator if the borrower’s chosen vehicle fails to repay the loan. Under the MMR, the responsibility for assessing a borrower’s ultimate affordability will lie with the lender.