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Categories:Mortgages

Lloyds makes further restrictions to interest-only offering

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Lloyds Banking Group is making a number of restrictions to its interest-only offering from tomorrow.

The changes will apply to all new interest-only, including part interest-only mortgage applications and further advances.

The bank will no longer accept cash savings, including Isas, as a repayment vehicle with further effects on stock and shares.

Stocks and shares will now be assessed at their current value and Lloyds group will lend at 80% of their value.

So if someone has £100,000 in shares Lloyds will be able to provide an £80,000 interest-only loan.

It will also require a minimum current value of £50,000 for this to be accepted.

Pensions must also have a minimum current value greater than £1m and up to 25 per cent of the current fund value can be used to support interest-only lending.

The policy changes do not apply to product transfers, transfers of mortgaged property and there is no change to the maximum LTV of 75 per cent on interest-only.

In a note sent to brokers the bank states: “We review interest-only criteria and risk controls on an ongoing basis. Following recent changes in the market for interest only mortgages, we have updated the policy for acceptable repayment vehicles. The updated criteria, which will apply from Thursday 16 February, will ensure that all interest-only borrowers are in a position to repay their loan in full at the end of the term, in line with our responsible approach to this type of lending.”

 

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Readers' comments (3)

  • What is very strange about this criteria is that it seems to be very inflexible. The whole point of ibnterest only is that it enables a flexible approach to repaying a mortgage.

    I guess we can only blame previous abuse of interest only - both by Bank Advisers, and Intermediaries - for the Bank's stance on this.

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  • This is another example of how sick the industry has got. Why do first time buyers need to concentrate today on repaying say a £100,000 mortgage over 25 years when in 10 years time they move and take out a £150,000 mortgage over a new 25 year term. It certainly proves that the FSA and lenders are supporting reducing term assurance being sold to ft buyers with built in obsolescence - do you hear - guaranteed churnability. One in three policies joint life policies will get cancelled just from relationship breakdowns so why isn't the FSA insisting ft buyers have single life policies.

    Do you know what happens at 65 when clients have managed to pay their mortgage off within FSA guidelines? All the lenders write back to these clients and offer to lend them the whole lot back under an equity release scheme - all within FSA guidelines.

    Sick, sick, sick.

    Remind me what's wrong with 99 year mortgages backed by Whole of Life insurance policies?

    The FSA is supporting the banks by enforcing repayment mortgages when they are not law makers - they are forcing youngsters to repay mortgage debt which is costing around 5% per annum in interest and preventing them from repaying credit card debt that is costing up to 30% per annum to service.

    Even more sick.

    If the FSA had an ounce of interest in the public and their money, they would ask experts like us for our thoughts and ideas - they know who we are but they are not interested.

    David Cameron keeps on insisting that we have fairness in all aspects of life and I personally believe that he would be horrified by some of the goings-on. I've written to David many times but you can't get past the correspondence gestapo at No 10. Should see the rubbish comments I've had back from Steve Webb and Mark Hoban. Jobs for the (I would allege, very narrow-minded) boys.

    We can see right through you and I am adamant that the public will get educated on these issues and they will find their voice.

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  • Call me cynical but wasn't interest only introduced in the early 1980's so everyone could sell 'with profits' endowment policies on the promise of that vast tax free cash lump sum.

    What followed was years of mis selling ridiculous financial products, low start endowments, pension linked, pep and isa loans and then eventually nothing needed at all to repay your interest only loan, except a few lies of the mortgage application form over stating future investment values.

    All this has contributed to the mess we are in now.

    Restricting interest only to the point where there is little risk to the borrower is a good move, the vast majority of the insurance repayment plans sold to financially inarticulate borrowers assuming unacheivable growth rates never worked to repay their mortgages anyway.

    This is regulation led in anticipation of MMR

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