Death knell sounded for interest-only mortgages

Wookster

I can't believe this hasn't been posted yet...

Death knell sounded for interest-only mortgages



Lloyds Bank is cutting back on interest-only mortgages as it seeks to mitigate the increased risks posed by such deals.

The bank, which is Britain’s biggest mortgage lender and is part-owned by the taxpayer, will insist that customers looking to borrow more than £500,000 make capital repayments. People taking out interest-only mortgages through Halifax or Cheltenham & Gloucester will also have to pay a levy of 0.2 of a percentage point.
About one in five homeowners are estimated to be on interest-only deals. Millions of borrowers took out the loans during the housing boom and they are still popular among City workers and other borrowers who prefer to use bonuses to pay off the capital.
Aaron Strutt, Trinity Financial Group, another broker, said: “This will make it more difficult for creditworthy borrowers to take out a larger loan. People who expect bonuses often take out interest-only deals because quarterly bonuses can be used to repay the capital in chunks. These know that they will have to repay the mortgage at the end of the term.”

The full article is here:

http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article7124708.ece

Harry_Powell

It only affects people with over £500k mortgages, and I can't imagine that there are many people with mortgages of that magnitude. Isn't the average mortgage around £60k?

Blacklight

Wookster wrote: »

I can't believe this hasn't been posted yet...

It's because it's not really newsworthy. How many people do you know thinking about taking out a £500k mortgage?

Hardly the 'death knell' is it.

carolt

Interesting direction - and very sensible too.

Maybe they're wondering about the potential effects on City bonuses will be of the new govt's plans to 'deal with' the bonus culture, and other moves to tax/control bank profits?

HAMISH_MCTAVISH

carolt wrote: »

Interesting direction - and very sensible too.

And all on the same day the Post Office announces Interest Only mortgages at 90% LTV.....

Seems it's not the "death knell" after all.;)

brit1234

HAMISH_MCTAVISH wrote: »

And all on the same day the Post Office announces Interest Only mortgages at 90% LTV.....

Seems it's not the "death knell" after all.;)

no link yet again hamish

HAMISH_MCTAVISH

Northenden wrote: »

http://news.bbc.co.uk/1/hi/business/10110525.stm

Cheers.... :beer:

The Post Office has stepped up its attempt to become one of the UK's biggest mortgage lenders.

It is offering a mortgage deal that requires just a 10% deposit.

Unusually, the deal is available on an "interest-only" basis as well as the normal "capital-and-interest" repayment method.

And Brit, there's a whole thread on it..... Try reading for once.

chucky

brit1234 wrote: »

no link yet again hamish

hi Brit - hope that you're well.

here's that link that you asked for
http://news.bbc.co.uk/1/hi/business/10110525.stm

any comments on the introduction of 90% interest only mortgages?

carolt

From today's papers:

http://www.dailymail.co.uk/news/article-1278177/First-time-buyers-hit-fresh-lending-drought-banks-clamp-mortgages.html


Note these parts:

"Melanie Bien, director of the broker Savills Private Finance, said she believes that interest-only mortgages may eventually disappear.

She warned: 'The days of the interest-only mortgage are numbered. Lenders see them as being extremely risky, and they would much prefer everybody to have a repayment deal.

'There will be fewer and fewer of them, and they could eventually disappear.'
Within hours of Lloyds's announcement, another top lender, Nationwide, said that it is reviewing its interest-only mortgage offer.


Other lending giants have already decided to take a much more cautious approach.

Santander, owner of Abbey and Alliance & Leicester, has cut its maximum loan size for interest-only deals to 75 per cent of the value of a property. It used to be 85 per cent.

Homeowners who can afford a repayment mortgage are given a more generous deal, and are able to borrow 90 per cent of the property's value.

...David Hollingworth, from the mortgage brokers London & Country, said lenders are all taking a close and cautious look at their interest-only deals.

He said: 'The move by Lloyds is the start of a trend.

'When the biggest lender makes this kind of move, it just signals that that is where the market is going.

'For millions of people it should be a wake-up call. How exactly are you going to repay your mortgage?'"

chucky

For the first time, it is introducing a cap which means it will refuse to hand out an interest-only mortgage for more than £500,000.

http://www.dailymail.co.uk/news/article-1278177/First-time-buyers-hit-fresh-lending-drought-banks-clamp-mortgages.html#ixzz0ntejt7e7

**chucky financial warning** interest only mortgages without a repayment vehicle are dangerous and are not recomended