Barclays to apply minimum income requirement for interest-only borrowers
Barclays is to scrap its minimum loan size in favour of a minimum income requirement to determine if a borrower is eligible for an interest-only mortgage.
From 4 June, sole applicants will have to have a gross income of at least £75,000 to qualify for an interest-only mortgage with the lender.
For joint applicants, either one borrower must have a gross income in excess of £75,000 or, if neither person’s income meets this requirement, then joint gross income must be at least £100,000.
The lender has also made changes to its criteria around acceptable repayment vehicles. Where the borrower intends to use the sale of the property to clear their debt, there will be a minimum equity requirement of £300,000, which replaces the minimum loan size of £300,000. The maximum LTV of 50 per cent still applies.
For borrowers who wish to use a repayment vehicle that does not include selling the mortgages property, the maximum LTV remains at 75 per cent, although the minimum loan size of £300,000 has been removed. Barclays accepts endowments, stocks and shares ISAs and unit trust or investment trusts.
The new rules do not affect current interest-only customers, who will be able to port, transfer equity or rate switch on their current terms as long as they are not borrowing more money. If they want to borrow more then the new rules apply.
All applicants looking to apply under the existing rules must submit applications by close of business on 3 June.
A spokeswoman says: “We remain committed to the mortgage market and interest-only mortgages. This change is not about restricting lending, it is about ensuring that customers for whom interest-only is appropriate have the flexibility they need, ensuring those customers that want to borrow less that £300,000 on an interest-only basis are able to do so.
“We have already said that our focus is on the more affluent customer for interest-only lending and this change reflects this.”
Chadney Bulgin mortgage partner Jonathan Clark says: “Any relaxation on interest-only criteria that will give advisers and their customers more options is to be welcomed and Woolwich’s lead will hopefully be followed by other lenders. However, it is clear that this change in policy is aimed at more financially sophisticated clients in keeping with the FCA’s guidelines.”
Last year many lenders significantly tightened their interest-only criteria, many limiting their maximum LTVs to 50 per cent, or even withdrew from this type of lending altogether. The mortgage market review rules, which come into forced next April, scale back the use of interest-only by demanding more stringent repayment plans.
Earlier this month the Financial Conduct Authority published the details of its long-awaited thematic review on interest-only mortgages, which found that an estimated 48 per cent of the 2.6 million outstanding interest-only mortgages will have a shortfall when they mature. The FCA estimates the average shortfall to be around £71,850.
It also found that only 10 per cent of borrowers – 260,000 – do not currently have a repayment plan in place.