Woolwich follows Lloyds in interest-only clampdown
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Woolwich has joined the clampdown on interest-only mortgages with changes to its accepted repayment vehicles and affordability calculations for interest-only lending.
The mortgage arm of Barclays has decided that any mortgages over 75 per cent loan-to-value should now be repayment-only, with the lender withdrawing the ability to have part-repayment and part-interest only mortgages above 75 per cent LTV.
Affordability caluclations will no longer be done over the whole mortgage term but instead will be calculated over an assumed term of 25 years or until age 70 or retirement age of the main income earner, whichever is sooner.
New acceptable repayment vehicles include existing endowment policies, existing stocks or shares ISAs, existing unit trusts, and existing investment plans or bonds.
The sale of a mortgaged property can also be used as a repayment vehicle as long as the property has a maximum LTV of 66% and at least £150,000 equity.
Woolwich plans to carry random sample checks with clients to evidence the repayment vehicles that are quoted on the application.
In an email sent to brokers today Woolwich says: “We firmly believe that interest-only mortgages have a place in the mortgage market. However, the current economic conditions of low interest rates, coupled with uncertain trends in terms of future house prices have meant it may not be suitable for some clients to take out interest only mortgages.
“As a responsible lender, we want to work with you to ensure that customers are sold the most appropriate mortgage for their circumstances.”
The changes are effective from October 25.
Woolwich’s changes come after Lloyds Banking Group announced it will carry out spot checks on brokers who submit interest-only cases and ask them to evidence that an appropriate repayment vehicle is in place.
Lloyds first reviewed its interest-only policy in May.
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