Brokers slam 'illogical' cap on interest-only

4 June 2010 8:00 am | By Paul Thomas

Brokers specialising in high-net-worth clients say that Lloyds Banking Group’s decision to cap interest-only lending for mortgages over £500,000 is illogical.

Last month, Lloyds decided it would only accept applications for mortgages on an interest-only basis up to £500,000 and would no longer accept the sale of a main residence, sale of a business or an inheritance as repayment methods.

Savills Private Finance managing director Mark Harris says that it would make more sense to stop interest-only mortgages for those borrowing less than £500,000 rather than penalise the wealthier, bonus-led borrowers.

He says: “There is not a great deal of logic to use the loan size, it has got to be what is best for the client. The borrowers that suit interest-only are the bonus-led people. If I were Lloyds, I would restrict LTV and ensure that someone on 90 per cent is repaying their loan monthly.”

Coreco director Andrew Montlake says: “Typically, highnet-worth clients have different options and in a lot of cases a higher level of sophistication. In a way, it is penalising the wrong group.

“There needs to be something done about interest-only borrowing but it needs to be done through sensible underwriting rather than a blanket ban.”

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