Woolwich has tightened its interest-only criteria by introducing a “plausibility” check to ensure a customer’s repayment plan will be able to repay the mortgage at the end of the term.
The change, which took effect from January 23, means borrowers will be asked for documentary evidence to determine the feasibility of the plan.
The FSA’s final mortgage market review consultation paper, published last month, proposes that lenders must assess affordability for interest-only loans on a capital and interest basis unless the borrower has “a clearly understood and believable” way to repay the mortgage.
Woolwich, which is the intermediary lending arm of Barclays, will no longer take into account the potential growth of any investments the customer has when assessing the amount it is willing to lend on an interest-only basis.
John Charcol senior technical manager Ray Boulger says: “It is hard to think of a better way to decline a large proportion of further advance requests from people who have an interest-only mortgage, thus pushing borrowers either to remortgage or more expensive alternatives such as a second-charge or an unsecured loan.”