Changes in lending criteria


Stricter rules on lending criteria introduced by many of the UKs major high-street lenders have made it practically impossible for some borrowers with interest-only mortgages to move home and significantly reduced the options of those seeking a first mortgage.

Many of the lenders, including the Lloyds Banking Group (which includes Halifax, Bank of Scotland, TSB and Cheltenham & Gloucester) will no longer accept cash savings, such as ISAs, as an acceptable way to fund the repayment of an interest-only mortgage because they deem them to be short-term and potentially unreliable investments.  Instead, lenders are requiring their borrowers to show evidence of investment in long-term savings products, such as endowments or equity ISAs.

The upshot is that many borrowers will now be required to have at least £50,000 invested in an acceptable long-term savings vehicle if they wish to have an interest-only mortgage and will only be able to borrow up to 80% of the total value of their investment. The new rules effectively mean that many borrowers will be trapped with their existing interest-only products as Many borrowers who are already on an interest-only mortgage are likely to be hardest hit as it is unlikely that they will be able to afford to switch to a repayment mortgage.  It will also make it much harder for first-time buyers to secure an interest-only mortgage.

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