The policy comes as part of a review of its interest-only lending and also follows the FSA’s mortgage market review proposals that lenders should assess the affordability of interest-only mortgages as though they were capital repayment loans. Lloyds has already introduced changes to interest-only pricing making new interest-only products 20 basis points more expensive than repayment loans.
The repayment vehicles that Lloyds now deems acceptable for interest-only mortgages are endowments, pensions, Isas and share portfolios.
Lloyds says the reason it no longer accepts sale of the main residence as an acceptable repayment method is “it is important that repayment vehicles can provide certainty of their future value”.
The Mortgage Practitioner principal Danny Lovey does not see how Isas or endowments provide any more certainty over future value than the sale of a main residence, while Burwood Financial Consultants managing director Peter Suttill says he believes it has more to do with Lloyds wanting to get their capital repaid.
Lovey says: “You can argue the price might go down and that is true but if you take an Isa or endowment, how can that be less risky than the future value of your home? An Isa or endowment is completely dependent on investment performance and the amount of money you put in to provide a pot at the end.”
Suttill says: “I can understand applying that rule to high loans to values but I suspect they are more concerned, not necessarily with the FSA’s issues over interest-only mortgages, but about discouraging interest-only so they get some of their capital back. It is a shame that someone that is such a major force in the mortgage market is becoming more and more restrictive. It is a bit of a worrying trend. They are taking away consumer choice.”
Emba group sales and marketing director Mike Fitzgerald says: “I can understand why Lloyds is doing this but I would be able to understand it more if they had done so a year ago. Now, we are just starting to see through the clouds, people are happy and the indexes are going up a bit.”