After Santander slashed its interest-only LTV and Lloyds Banking Group made changes to interest-only repayment vehicles, I am left wondering if the pendulum has swung too far the other way.
These moves will affect brokers who rely on interest-only sales but I am unsure whether this is what the regulator envisaged when it urged caution on such lending.
It appeared at ease with ISAs and pensions, just not speculative vehicles like future inheritances or property price rises. So the recent moves by lenders will increase the number of people who are trapped and many interest-only clients won’t be able to remortgage.
Interest-only has a legitimate role, not least for the self-employed, but even for distress cases.
Before a court will grant a repossession order it will enquire whether borrowers can be moved to interest-only. Will lenders refuse? The regulator has said interest-only is right for some borrowers and has no desire to ban it.
Is this a judgment on lenders’ own finances? Possibly. It is ironic that these banks say they will no longer look on full future value ISAs and cash savings as repayment vehicles while selling such products themselves and claiming they offer growth.
Common sense seems to have deserted us. When it comes to cash savings and investments, interest-only mortgages should be allowed as long as the client is aware of how they are going to repay their mortgage and it’s a loan based on reality rather than hope.