Interest-only screws tightened across market By Sarah Davidson


april was not a good month for the interest-only mortgage with more lenders cutting their maximum loan to values and refraining from making the loans to first-time buyers. at the start of the month


Lloyds Banking group cracked down on interest- only criteria, bringing loan to values at Halifax down to 75% from 85% and into line with its other brands. nationwide and the mort-


gage Works followed suit, bringing their maximum LtV down to 75% from 85% on residential interest-only loans which the mutual said was to “bring the group’s policy in line with a number of major lenders”. Later in the month, Lloyds hiked rates on its interest-


Scream if you want a mortgage


by Robert Sinclair director AMI


as we hurtle towards sum- mer and children of all ages clamour for their alton towers fix, there are as many risks in our economy and mortgage market as at a theme park, with world fi- nances so far having avoided oblivion. as inflation continues to


besiege us and wages stay near flat, the real cut in liv- ing standards continues. a base rate increase reduces in likelihood and 0.5% this year and more than 1% next year


only deals, cut the number of repayment vehicles it ac- cepted and introduced a requirement for borrowers to provide written documen- tary evidence of their repay- ment plans. it simultaneously raised the minimum loan amount on interest-only deals from £500,000 to £1m. despite indications from


the Financial Services au- thority that it does not intend a blanket ban on interest- only mortgages under the mortgage market review late last year both royal Bank of Scotland and coventry have stopped making interest-only loans to first-time buyers with rBS saying it is “prudent for first-time buyers to build up equity in their property by re- ducing capital from day one”. mike Fitzgerald, director


is looking unlikely. this makes the need for


the 60% of people on vari- able rates to fix less pressing, but still appropriate for those looking for certainty. indeed it may feel more


like a World of adventure. the cuts in public spending and accompanying rise in unemployment may make lenders less sanguine. the economic target is to get the private sector to pick up the slack, but concerns are emerging over how employ- able many former public sector staff will be. Will they have the right skills and at- titudes for new employment and will the jobs be where the unemployed live? given the current levels of


risk control in the mortgage market, a new loan for the recently redundant seems


of essex-based broker Brent- wood Financial, said it was a retrograde step for the mar- ket. “there was a bit of a fu-


rore over interest-only last year about whether they’d be banned under the mmr but the FSa seems to have soft- ened their approach since then. interest-only can be disastrous for the wrong bor- rower but perfect for the right people – especially those with lumpy incomes who want to overpay after bonuses for ex- ample,” he said. david Hollingworth, head


of communications at bro- ker London & country, said: “this goes to show there’s continued caution around interest-only deals. it narrows the options for those looking to get an interest-only deal


like a distant memory. indeed with new capital and liquidity pressures, the queue for nemesis may be much shorter than the aver- age mortgage queue, and less frustrating as at least there is a thrill at the end of one queue. also lenders are still feeling cautious about regional declines in property prices. on the Pleasure Beach,


the Financial Services au- thority is currently stranded by the european union draft directive on credit agree- ments relating to residen- tial property. this will be shortened to carrP and a danger for all of us with bad typing. the capture of personal buy-to-let and the inclusion of bridging loans is perplexing but intended. although feasible under


though and it will have a big impact on borrowers. “there’s also the existing


customer base on interest- only deals and when they review their mortgage situ- ation when the time comes to remortgage, the landscape will look very different for them.” Paul Broadhead, director of


mortgage policy at the Build- ing Societies’ association, added: “the FSa is clearly concerned about interest- only and i can understand why they are looking at it. But i am not sure what problem they’re trying to fix. it’s there- fore unsurprising that lenders are moving ahead of the FSa on changes to interest-only criteria because they’re ex- pecting change and want to shape their own books.”


current wording it is not the intention to exempt some interest-only loans, so there will be re-drafting here. the plans to require more con- trols and increase disclosure for intermediaries are testing but the plan to make advice a more “all market embrac- ing concept” could forever change our market. this should all be a done


deal by the year end, or it is likely to take many years to reach europe-wide con- sensus. either way we can expect final mortgage market review rules for implemen- tation on a rolling basis from the middle of 2012. it promises to be a warm


summer on the lobbying and regulatory front. Let’s hope that the screams will be confined to themes in the world of leisure.


mortgage introducer MAY 2011 5


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