Home owners to be moved off interest-only mortgages

doire_2

Based on people about to move their mortgage but sure to affect a lot of people. Maybe the banks are gearing up for more price falls?

Home owners with interest-only mortgages are being made to pay higher monthly payments after being moved onto costly capital repayment deals amid fears of a double-dip in house prices

Santander is one of several high street lenders which have introduced the new rules for borrowers with interest-only deals. Halifax is also understood to applied changes.

Borrowers without sufficient equity in their homes are being moved onto repayment deals once their initial deal has come to an end.



<H4 class=header>Banks said the move was part of “prudent” lending during the economic downturn and are unable to rule out imposing a further squeeze on borrowers in the months ahead. </H4>
It comes amid concerns that the housing market is heading for a double dip as economists predicted that home owners could lose the equivalent of more than the average salary off the value of their homes.
Nationwide reported house prices dropping 0.9 per cent in August, following a 0.5 per cent drop the previous month.
Santander told The Daily Telegraph that customers with less than 25 per cent equity in their home would be moved onto a capital repayment basis.

It means that even if the rate they are currently paying does not rise, a borrower with a typical £150,000 would pay an extra £390 a month. This calculation is based on the borrower paying a mortgage rate of 3 per cent.

Melanie Bien, of mortgage brokers Private Finance, said: “For home owners with interest-only mortgages, a forced switch onto a repayment deal by their lender at the end of their fixed or discounted period would lead to a significant rise in their monthly payments. For those saddled with big mortgages, it may well be an unaffordable increase, making it difficult for them to make ends meet.

“Lenders are worried about a further downturn in prices and are introducing these changes to protect themselves, as well as borrowers. But hard-pressed homeowners may find it’s an extra cost too far.”
Interest-only mortgages are one way borrowers can reduce their monthly mortgage repayments - but those who took this type of mortgage several years ago may now be paying a heavy price.
This is because banks were tightening their lending criteria much more on interest-only deals amid fears of borrowers defaulting on their loans.

A spokesman for Santander said: “If a customer wishes to move, or 'port', their mortgage to a new property we will treat it as a new application. Santander currently only offers interest only mortgages to people with at least a 25 per cent deposit. If someone doesn't have this and wants to remortgage with us or move their mortgage to a new property we will decline the application unless the customer switches to a capital and repayment mortgage. We do have a case by case exceptions process in place where this is not possible and we will consider extending interest only deals providing we are happy the customer will be able to repay the capital at the end of the loan. It is not in Santander's or our customer's interest for them to be unable to do so.”

http://www.telegraph.co.uk/finance/personalfinance/7982810/Home-owners-to-be-moved-off-interest-only-mortgages.html

System

The statement at the end suggests it's just for movers, which is contradictory to the 3rd para.

Strings

It also states that they will do IO, but the customer needs to demonstrate they can pay the loan back at the end of term.
Nothing new really

Heyman_2

Any excuse for a 'we're all gonna die!' style article though.

Thrugelmir

Home owners with interest-only mortgages are being made to pay higher monthly payments after being moved onto costly capital repayment deals

Costly? Borrowers are merely being asked to repay capital, which they will need to do so at some point in time.

ILW

Posted in error.

RenovationMan

This is very odd. My 5x salary mortgage is Interest Only and was arranged with Santander less than 3 months ago! They didn't even ask about a repayment vehicle. All I can assume is that I have 'sufficient equity' in my home (now 40% LTV) that they didn't feel the need to lay down the law with me.This all seems to be very politically rather than financially motivated to me.

Does anyone know if Santander and any other banks that follow suit will demand that their client's repayment vehicles are cashed in and paid onto the mortgage. Will they compensate their clients for the loss of interest and any redemption fees from cashing in repayment vehicles early?

ILW

Doubt it, I believe most mortgages have a condition that says it can be called in at any time.
Seems like the banks are getting nervous about where prices may be going.

MikeJ74

Does anyone know what would happen to those who lose their job and then get the Gov to pay the interest on their mortgage?

What if they were not on an interest only mortgage? How long before the bank will forclose?

michaels

I can see why lenders would look for any reason not to let borrowers go on to / remain on SVRs if their current circumstances would result in them having to pay a higher rate. Eg borrower has 90% ltv and is on IO and about to come to the end of a discount or fix and move on to SVR at 4.24% - new borrower rate for Santander 90% svr is 4.99% tracker or 5.99% fixed so makes sense for them insist on a 'remortgage' when any special rate period is coming to an end.

Generali

MikeJ74 wrote: »

Does anyone know what would happen to those who lose their job and then get the Gov to pay the interest on their mortgage?

What if they were not on an interest only mortgage? How long before the bank will forclose?

The bank won't foreclose in those circumstances AIUI, they will stop asking the mortgagee to make capital repayments until they get a new job.

The bank would (presumably) be able to enforce the original terms of the mortgage contract if they wanted but there seems little point if you can get a AAA party to take on the interest burden from a far from AAA borrower.