News Review
Lenders clamp down on interest-only criteria By Sarah Davidson
February saw a spate of lend- ers signal their lack of appetite for interest-only mortgages. Abbey for Intermediaries led the retreat slicing its loan to value criteria from 75% on in- terest-only deals to 50% over- night. Lloyds Banking Group has stopped accepting cash ISAs, pensions under £1m and will only accept stocks and shares at 80% of their market value as legitimate re- payment plans. Woolwich too adjusted its acceptable repay- ment plans restricting bor- rowers from using a pension at all.
Meanwhile smaller lenders
followed suit with Clydes- dale Bank cutting its inter- est-only LTVs from 75% to 50% for borrowers with cash or downsizing as their repay- ment method and Leeds also snipped its LTV to 50% for borrowers planning to sell in order to repay. Kensington has also written to some of its brokers requesting evi- dence of the repayment ve- hicle’s performance. Ray Boulger, senior techni- cal director at John Charcol, said: “These changes take
us further along a race to the bottom by major lend- ers as far as being consumer friendly is concerned. “Many who have perfectly sensible repayment strat- egies will find they can’t meet the new criteria and the nearer they are to their planned retirement age the more unlikely they will be able to afford to switch to a repayment mortgage,
or
indeed be able to meet the lender’s affordability re- quirements for a relatively short-term mortgage. “Many of these borrowers will simply be the collateral damage of over-zealous regu- lation and become yet anoth- er mortgage prisoner.”
Pre-emptive The moves come after the latest Mortgage Market Re- view paper published by the Financial Services Authority at the end of last year called for lenders to assess afford- ability for interest-only on a repayment basis.
The proposed regulation also prevents borrowers us- ing the sale of a property as a repayment method.
But Tony Ward, chief ex-
ecutive of Homefunding, claimed lenders are react- ing to the inherent risk in interest-only mortgages and are consequently winding down how much of this type of deal they do in future. He said:
“Interest-only
lending has its place but is an undeniably higher risk product for lenders and one that should rightly remain as a niche rather than main- stream product. That’s how it started; the market just lost sight of that.”
Opportunities Brokers reacted with frustra- tion at the move to tighten the availability of interest- only but Boulger highlight- ed a silver lining. He said: “With the options available to borrowers wanting an in- terest only mortgage rapidly shrinking and with such di- verse lender requirements, the need for good indepen- dent mortgage advice is be- coming increasingly impor- tant.”
And Lea Karasavvas, man-
aging director at Prolific Mortgage Finance, said: “Ab-
bey is being very responsible with their current criteria and showing compliance to the Mortgage Market Review.
“With such diverse lender requirements, the need for good independent mortgage advice is becoming increasingly important”
“Whilst I can understand the frustration of brokers in the current climate with criteria change after criteria change and last minute rate pulls,
it’s important we re-
mind ourselves that such cri- teria changes are required in the environment we are in. “Already 2012 is shaping up to be as challenging, if not more so, than 2011 but thing that will never change is the need for professional advice in mortgage finance.”
4 MORTGAGE INTRODUCER MARCH 2012
www.mortgageintroducer.com
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