HSBC and Yorkshire societies announce plans to rein in interest-only lending

Two more lenders have reigned in their interest-only lending with Yorkshire Building Society pulling out of the sector altogether.

Last week, on the day of the Budget, Mortgage Strategy revealed YBS had pulled out of new interest-only lending completely while HSBC had pulled out of interest-only for all but its wealthier clients.

YBS says the change applies across all of its lending brands, which includes Barnsley Building Society, Chelsea Building Society, Norwich & Peterborough, Yorkshire and broker-facing brand Accord Mortgages, although interest-only mortgages will continue to be available for buy-to-let only from Accord.

HSBC, which cited the mortgage market review as its reason for limiting interest-only to its premier customers, now requires customers to have either savings or investments of at least £50,000 with HSBC in the UK, or an annual income of at least £100,000 with a mortgage, investment, life insurance or protection product with HSBC.

The FSA established as part of the final publication of the mortgage market review that ultimate responsibility for repaying the capital at the end of an interest-only term rested with the borrower, not the lender.

The regulator has promised a thematic review into the interest-only market which will be published later this year.

Coreco director Andrew Montlake says: “It was interesting to note that this move was communicated on Budget Day, presumably in the hope that it would be passed over with other news, but this is another big blow to those who believe there is a place for interest-only.

“Given the positive news in the Budget with the announcement of the Help to Buy Scheme I hope that this negative news does not lead to more lenders who have already set a sensible interest only policy reviewing their stance yet again.”

HSBC joins a growing number of lenders to pull out of interest-only, such as Co-operative Group, Coventry Building Society, Newcastle, Royal Bank of Scotland and Nationwide.

A year ago, a stream of lenders, including Santander, ING Direct, Leeds Building Society and Principality Building Society, significantly tightened their interest-only lending criteria, many of which limited their maximum loan-to-value on this type of lending to 50 per cent.