From this week, Lloyds Banking Group announced that it will no longer offer interest only mortgages for those customers wanting to borrow in excess of £500K. Customers applying for a loan of more than £500,000 will have to pay back the total on 100% repayment basis. Lenders (Halifax and Cheltenham & Gloucester) do not offer the part-interest and part-repayment arrangement on such large loans.
Interest only loans proved popular with both City workers (who planned to repay with their bonuses) and also borrowers during the housing boom. These borrowers took out interest only mortgages to keep their monthly repayments down.However, last Octomber, the FSA branded interest only loans as ‘high risk’. They proposed that applicants for interest only should prove that they could afford the repayment mortgage and thus reducing the ‘high risk’ element.New customers can no longer rely on the equity in their home as an acceptable repayment security, instead they will have to prove some ISA or endowment plan is in place and that regular payments are being made into these. Some would argue that this move by Lloyds, albeit one less product, is an option that needed withdrawing some time ago.