Only last month we talked about the continued tightening in interest only criteria and I’m afraid that the trend has continued this month.
More and more lenders have begun to impose restrictions on interest-only lending. The main approaches are either to reduce the maximum percentage of the property value (loan to value or LTV) that they will allow on an interest only basis, or to tighten up the acceptable repayment vehicles or in some cases both.
For example Santander cut the maximum loan to value for interest only mortgages to 50% just last month. It has subsequently followed up with some additional restrictions around the repayment vehicles. Although it will still accept the sale of the property there is now a requirement for at least £100,000 of spare equity in the property.
Coventry BS, Leeds BS and Teachers BS have all cut their maximum loan to value for interest only to 50% and Skipton reduced theirs to 60%.
The Royal Bank of Scotland Group has decided to leave interest only to as much as 75% LTV but is requiring that borrowers have held a salaried RBS/Natwest current for at least 3 months and that the borrower is earning a basic salary of £50,000 or more.
All in all it’s a bleak outlook for borrowers looking to rearrange their interest only mortgage and the more lenders that tighten up, the more likely it is that others will feel compelled to follow. Even if they are comfortable with the concept of interest only, being the last man standing will inevitably lead to higher volumes of interest only business. That in turn looks set to turn interest only into something of a niche product.
