Lloyds makes further interest-only changes
Share
Lloyds Banking Group is making a number of restrictions to its interest-only offering from tomorrow.
The changes will apply to all new interest-only, including part interest-only mortgage applications and further advances.
The bank will no longer accept cash savings, including ISAs, as a repayment vehicle with further impact on the use of stocks and shares.
Stocks and shares will now be assessed at their current value and Lloyds group will lend at 80% of their value.
So if someone has £100,000 in shares Lloyds will be able to provide an £80,000 interest-only loan.
It will also require a minimum current value of £50,000 for this to be accepted.
Pensions must also have a minimum current value greater than £1m and up to 25% of the current fund value can be used to support interest-only lending.
The policy changes do not apply to product transfers, transfers of mortgaged property and there is no change to the maximum LTV of 75% on interest-only.
In a note sent to brokers the bank states: “We review interest-only criteria and risk controls on an ongoing basis. Following recent changes in the market for interest only mortgages, we have updated the policy for acceptable repayment vehicles. The updated criteria, which will apply from Thursday 16 February, will ensure that all interest-only borrowers are in a position to repay their loan in full at the end of the term, in line with our responsible approach to this type of lending.”
Acceptable repayment vehicles and new calculations:
Customers will be able to use a combination of its acceptable repayment vehicles above, or ’mix and match’ the acceptable repayment vehicles to reach the minimum £50,000 acceptance criteria. The exception to this is for sale of other residential property which must have a current equity of over £50,000.
Example 1
Customer one has a £30,000 Stocks and Shares ISA and customer 2 has £30,000 Stocks and Shares. Combined this equals £60,000 and is therefore acceptable as a repayment vehicle. Using 80% of the current value, this is sufficient to cover £48,000 in interest-only lending.
Example 2
Customer one has another residential property valued at £150,000 with a mortgage of £50,000. The current equity value is therefore £100,000 and using 80% of this is sufficient to cover £80,000 in interest-only lending required for a mortgage application.
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
View results 10 per page | 20 per page | 50 per page
Readers' comments (42)
roger travis | 15 Feb 2012 1:14 pm
Pensions must have a minimum current value greater than £1 million and up to 25% of the current fund value can be used to support Interest Only lending.
how many people does this apply to?
Unsuitable or offensive? Report this comment
RRJ | 15 Feb 2012 1:21 pm
What nonsense, it would be hard to find a worse example of TCF in practice..
I recently attendinded a FSA MMR day where the FSA expressly said that they are perfectly happy with interest only - i.e. ISA, pensions, endowments etc, but not with speculative vehicles such as future inheritences or property price rises.
Very reasonable I thought.
Now Lloyds group decides, to all intents and purposes, to entirely ban interest only, blaming the last lot of restrictions on FSA guidelines.
What balderdash.
More worrying, it the number of 'mortgage prisoners' this will create, as many current interest only borrowers (not to speak of the self-employed / the odd missed credit card payment) will be unable to remortgage at all.
This does not fit in well with the FSA's transitional arrangements where they have suggested that current mortgage holders (for example interest only) are dealt with more flexibly than a brand new borrower would be, under proposed MMR rules.
Interest only (and I quote) is viewed by the FSA as the right option for some borrowers and we do not wish to ban it.
What a shame that Lloyds does.
Unsuitable or offensive? Report this comment
colin | 15 Feb 2012 1:26 pm
hardly unexpected in the wake of Abbeys recent changes.......no doubt more will follow.
Never did quite get the logic of the cash savings element......if you had £7k in savings and a 25yr term you cold have £175k on Int Only.......so they were assuming the client could/would save £7k per annum!!!!!!!!!!! lol......whoever dreamt that up is clearly in sales and not risk!!!!!!........as regards interest only last one out turn the lights off!!!!!!! Granted it may have been abused in recent years but the draconian stance being taken now is damaging.
Unsuitable or offensive? Report this comment
colin | 15 Feb 2012 1:27 pm
Roger......Fred Goodwinand very few others i suspect ???
Unsuitable or offensive? Report this comment
Simon | 15 Feb 2012 1:31 pm
Just more excuses not to lend and to keep the mere mortals in their place.
Unsuitable or offensive? Report this comment
Paul 2 | 15 Feb 2012 1:41 pm
@ Roger.
It applies to everyone on the board of Lloyds Banking Group.
Unsuitable or offensive? Report this comment
Barrie | 15 Feb 2012 1:48 pm
Hopefully the repayment vehicle doesn't consist of Lloyds Banking Group shares. As an underwriter I wouldn't rely on them!
Unsuitable or offensive? Report this comment
Andrew | 15 Feb 2012 1:54 pm
As has already been said what they've decided is illogical to me and isn't well thought out - it strikes me their decision on interest only is quite similar to some of those made by MP's!
Can't understand why the Fred Goodwin snipe is still making the rounds!
Unsuitable or offensive? Report this comment
Dazed & Confused | 15 Feb 2012 1:58 pm
What? You mean that there really are people out there who don't have Pension pots worth at least £1million?
I really will have to take my rose tinted specs off more often!
Yet another reason to curb lending to the masses.
Unsuitable or offensive? Report this comment
terry | 15 Feb 2012 2:05 pm
Just another way of creating them and us. They are no doubt all nicely settled in their homes so sod anyone else. Back to the victorian days where the bosses were the elite and the rest were classed as plebs. The FSA and government are taking away all incentives to save and for working people to better themselves.
Unsuitable or offensive? Report this comment