Lloyds TSB blocks interest only mortgage switch

poppy10_2

Looking worse and worse for those struggling to make their mortgage payments:

Lloyds TSB, one of Britain’s biggest mortgage lenders, came under fire after it emerged that it was stopping borrowers switching from repayment mortgages to interest-only deals. The lower monthly repayments of interest-only mortgages are often a lifeline for hard-pressed borrowers.

Switching from a repayment loan to an interest-only deal, which could save a borrower with a £150,000 loan more than £200 a month, is an option that lenders can offer borrowers who are struggling to meet repayments to try to keep them in their homes.

Outlining a raft of tight new lending criteria in a note to brokers the lender said: "Existing customers with their lending on a repayment basis can no longer switch their payment method to interest only."

Frances Walker, of the Consumer Credit Counselling Service, a debt charity, said last night that the move by Lloyds TSB was very disappointing. “This is not in the spirit of the new scheme announced by the Government last week,” she said.

source

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I think this is perhaps a little unfair for people already with a mortgage, however it should be manditory to have an investment vehicle (and show proof of) if you are applying for an interest only mortgage in the first instance, like it used to be.

huntersc

I think that this is exactly what all banks should be doing and is in the spirit of strengthening our economy.

The option of an interest only mortgage should simply not be available to most people.

It's a little like all those poeple that get into trouble with their credit cards. They go off, spend a ton of money, only pay the interest, 6 months down the line, along with 10 different cards and a number of 'consolidation' loans they realise that they have no way of ever paying off the full amount. Bingo, in trouble.

If you cannot afford a repayment mortgage then to be honest you shouldn't spend that much on a house.

HammersFan

But the good news is that BoE tracker rates look like they are going to be plunging. Its not all doom and gloom out there.

wymondham

This won't help reposession rates at all !!

ad44downey

Good news. The days of reckless lending are coming to an end. May they never return.

Realy

I think they will be forced to allow intrest only if repo looks likely.
The bank have to prove to a cort they have done what they can to avoid repo, lowering outgoings by switching to IE is one of them.

Ian_Griffiths_Halifax

huntersc wrote: »

I think that this is exactly what all banks should be doing and is in the spirit of strengthening our economy.

The option of an interest only mortgage should simply not be available to most people.

It's a little like all those poeple that get into trouble with their credit cards. They go off, spend a ton of money, only pay the interest, 6 months down the line, along with 10 different cards and a number of 'consolidation' loans they realise that they have no way of ever paying off the full amount. Bingo, in trouble.

If you cannot afford a repayment mortgage then to be honest you shouldn't spend that much on a house.

I have a mortgage and I'm a Mortgage Consultant.

I am single with no dependants and have a mortgage on an Interest Only basis.

I have nobody to leave the property to if I die so why do I need to pay the mortgage off?

Due to Investment Vehicles performing very badly and having been grossly mis-sold, why should I even consider a repayment vehicle?

So long as I keep up with my mortgage payments the lender will receive their interest and when I die, they will get the proceeds of the house sale, with the balance going to my estate. If I retire and have insufficient income to pay the mortgage, which due to inflation will be a low monthly payment in 25 years time, then I could down size or rent.

I personally would say that lenders should, to protect them selves against plans such as mine going pear shaped, insist on a %age of the mortgage being on a Repayment basis. 25% should do it and not cause the payments to rise too much for customers in comparison to their interest only payments. Obviously the term of the mortgage would make an impact on the monthly payments of the repayment element.

Interest Only mortgages are a Lifeline to some people in difficult situations and I would be surprised if Lloyds TSB/C&G could enforce this as they would not be 'Treating Customers Fairly'.

angrypirate

"Its not fair - the bank want me to pay some of the capital back as well as the interest from my loan". WELL THATS WHAT A LOAN IS.
Im sorry, i do feel sorry for people who have got themselves in financial difficulty, but people nowadays refuse to take responsibility for their actions and decisions.

abaxas

It's my right to not have to pay your back, innit!

For once, LTSBOS has it's head screwed on. By keeping people to the original (and fair) terms of the loan, they are not screwing anyone over. Mearly doing what the client asked for!

Ian_Griffiths_Halifax

These aren't normal times and a lot of people, some of you who are agreeing with their actions included, will NEED to change to an interest only basis.

It WILL happen as the financial meltdown has only just started and although you may feel smug in a nice cosey job, the knock on effect of people losing their homes and businesses will cause redundancies in jobs that have been considered 'safe as houses' in the past.

Who'd have thought that a Bank job would be at risk?

Who would think a Council Jobsworth Job would be at risk? Well with reduced funding to Councils due to Government Debt, jobs WILL go.

I hope that nobody gets into this position, but slamming the facility to pay on an Interest Only basis may make some of you eat humble pie in the future.

I'm no doom and gloom monger as many of you may appreciate from some of my posts, but helping my clients keep a roof over their heads is my number one priority and in 19 years of being in the basis I've not had a single client go to repossession. I feel that this may change soon though.