Five of the largest UK lenders have reaffirmed their commitment to interest-only mortgages, saying they have no plans to withdraw from the market.
HSBC, Lloyds Banking Group, Barclays, Coventry Building Society and Yorkshire Building Society say they are committed to the interest-only market, after Nationwide and the Royal Bank of Scotland announced major changes to their criteria last week.
The Royal Bank of Scotland axed non-advised interest-only mortgages in a bid to ensure there is sufficient evidence that borrowers have a repayment vehicle in place from the outset.
Nationwide confirmed it will stop offering interest-only mortgages to new borrowers, saying it has become a niche product accounting for less than 3 per cent of applications.
A Yorkshire Building Society spokeswoman says: “Whilst some lenders have withdrawn from interest-only lending altogether, the Yorkshire continues to lend in this market to customers for whom this type of lending is suitable.”
An HSBC spokeswoman says: “I can confirm that HSBC has no current plans to withdraw from the interest-only market. We offer interest-only mortgages up to 75 per cent LTV and lending decisions are based on affordability and evidence of a suitable repayment vehicle.”
A Lloyds spokeswoman says: “Interest-only mortgages represent a small part of our new business, and while we continuously review our product range we do not have plans to withdraw this option in the near future. Earlier this year we introduced a number of additional controls to ensure that customers have a repayment plan in place. Applications are only accepted when these requirements are fulfilled and the necessary documentary evidence is provided.”
There are now 32 UK lenders who still offer interest-only mortgages to new borrowers. The vast majority of these only offer products to borrowers with a 35 per cent deposit or higher.
Coreco communications director Andrew Montlake (pictured) says: “There is a danger you will see other lenders follow RBS and Nationwide’s lead but it depends on whether their share of interest-only business actually does go up. As long as lenders’ share does not reach an unsustainable level due to others dropping out, there might not be that much change in the market.”
Figures from the Council for Mortgage Lenders show residential interest-only lending declined steadily over the 10 years to the end of 2011. Lending with no specified repayment vehicle in place fell from 166,100 mortgages in 2001 to 42,800 in 2011. Mortgages with a repayment vehicle in place fell from 142,200 to 14,600 over the same period.
The FSA’s final mortgage market review consultation paper, published in December, proposed rules restricting the sale of interest-only mortgages to borrowers with a repayment vehicle in place. It also proposed a ban on non-advised mortgages. The final rules are expected to be published in the autumn.
Association of Mortgage Intermediaries director Robert Sinclair has dismissed fears that the review will present unassailable problems for interest-only lenders.
He says: “I genuinely do not believe the MMR is going to say anything too toxic about interest-only going forwards. Lenders are making decisions based on what they want their future book to look like.”