View more on these topics

Principality cuts maximum interest-only LTV to 50%

Principality 480

Principality Building Society is to limit its maximum loan-to-value to 50 per cent for mortgages where any element of the loan is on interest-only.

From 21 December, the building society will also insist the borrower has at least £150,000 equity in the property to take out a loan on an interest-only basis.

Previously the lender would lend up to 85 per cent LTV on an interest-only basis.

The changes apply to residential, both for new and further borrowing. Buy-to-let lending is unaffected by the changes.

In April, the lender restricted its interest-only offering to just three products. The changes now mean Principality will offer only one interest-only product, a 3.39 per cent three-year discount rate mortgage.

Principality mortgage product manager Chris Johnson says: “We have reviewed our interest-only proposition in line with the mortgage market review and recent changes across the market. We still believe there is a need for interest-only products for specific segments of the market and the changes we have made reflect this view.”

Since the start of the year, lenders have significantly tightened their interest-only criteria. Most have limited their maximum LTV to 50 per cent while other have pulled out of interest-only lending altogether.

Last week, Newcastle Building Society pulled out of interest-only lending for new borrowers, following on from NatWest and Coventry Building Society earlier in the month.

The Co-operative Bank was the first to pull out completely from interest-only in May this year and was followed in October by Nationwide. Both brands again argued that their decision had been prompted by a fall in demand with Nationwide stating that it represented less than 3 per cent of the applications that it received.

But between February and May this year, Santander, ING Direct, Leeds Building Society and Coventry Building Society all cut their maximum LTVs from 75 per cent to 50 per cent, while Skipton Building Society cut its maximum LTV from 75 per cent to 60 per cent.

The FSA established as part of the final publication of the Mortgage Market Review that ultimate responsibility for repaying the capital at the end of an interest-only term rested with the borrower, not the lender.

The FSA will publish a thematic review on the issues facing existing interest-only borrowers in early 2013.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com