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Northern Rock tightens interest-only policy

Northern Rock has tightened its policy on interest-only lending by reducing the maximum loan to value from 85 to 75 per cent and restricting the repayment vehicles it accepts.

The move comes after Lloyds Banking Group this month announced restrictions on interest-only lending, including capping the maximum loan amount at £500,000.

Northern Rock says it will no longer accept inheritance, dividends, regular overpayment, remuneration bonus or intention to convert to repayment at a future date as repayment strategies.

Nor will it accept the sale of a property as a repayment vehicle for loans over 60 per cent LTV or where the borrower has less than £150,000 equity in the property.

Northern Rock says it will continue to accept decision in principles on the outgoing policy until close of business May 28.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. predictable but nonetheless disappointing. our mates at LBG have alot to answer for in kick-starting the domino- fall. this issue is starting to become the volcanic dust phenomenom of the industry but unfortunately it’ll likely get thicker before it ever evaporates.

  2. What a bloody cheek.

    If someone has put down a 25% deposit and, effectively, minimised the risk to the lender of default, why should the lender have jurisdiction over how a borrower finances the eventual purchase.

    Clients move to smaller homes at retirement, inherit, have big pension lump sums from occupational schemes (if they work in the public sector) or simply are prepared to take the risk that their investments will beat the interest rate charged over the lifetime of the mortgage.

    It is unbelievable that Northern Rock, of all lenders, should be dictating on the subject of RISK.

  3. Why can’t the loans be in perpetuity,or as leaseholds ie 999 years,as long as the loan is financed.

  4. John Morrison 28th May 2010 at 9:23 am

    Would that not be renting?

  5. I think we will be seeing a lot of bogus investment vehicles being set up and never used!

    Presumably if you can prove you have an ISA or endowerment set up thats all they need. If the client choses not to use this vehicle thats their choice !

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