In the last few weeks we have seen huge changes to some of the major lenders lending policies in regards to interest only mortgages.
Lloyds Banking Group made the decision to bring in changes to interest-only mortgage criteria after Santander cut its interest-only LTV from 75% to 50% (that’s right a 50% deposit).
This week, Accord announced the withdrawal of all their residential products following an uplift in interest-only applications blamed partly on the recent decisions taken by Santander and Lloyds. Leeds is the latest lender to announce cuts in criteria.
So why are these changes taking place to interest-only Mortgages
Interest-only loans aren’t being outlawed going forward but the principles of ensuring sensible repayment plans are in place are being re-established . It will also be the lenders and they have to assess affordability on interest-only mortgages on a capital and interest repayment basis unless there is clear evidence of a repayment plan in place.
This is in anticipation by the banks to the new set of regulatory changes which will take place in a few months time. Lenders responsibilities are set at board level which means the men in charge don’t want any come back following the huge PPI scandal so they are over reacting to make sure they are seen by the regulator to being whiter than white well in advance.
So what does it all mean for you the borrower?
In short interest only mortgages for residential properties are going to be much harder to get and the application process and the documentation needed to be approved for one is going to be substantial. This means if you are looking to get this type of mortgage you better apply sooner rather the later as I do think other lenders will follow shortly. In fact I would say lender criteria has tighten up dramatically during this year in regards to all sort of aspects and its certainly true to say that getting a mortgage has never been so difficult (sorry to put a downer on things).
Areas of recent tightening to Lender Criteria that we have encountered:
- Changes around gifted deposits from family members
- Affordably and credit scoring
- Attitude to risk around foreign nationals
- Missed payments and past CCJ criteria
Final note. Getting an intial acceptance from a lender doesn’t mean you are going to get a mortgage from the lender. I have seen a surge in declined applications from lenders even when the clients have had agreements-in-principle and had Valuations taken place so be warned.
Please keep you options open buy talking to us. You can always contact me on 02079932044 or email firstname.lastname@example.org
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on Property financing both on residential and commercial lines.