Lloyds Banking Group borrowers with an interest-only mortgage who are looking for a further advance will now have to supply evidence of a repayment plan for the entire loan.
Previously, Lloyds group asked borrowers to provide evidence of a repayment method only for the extra that they sought on the loan.
But, from May 28, borrowers have to show evidence that they can pay off the entire loan if their existing mortgage is interest-only.
In February, Lloyds group tightened its interest-only criteria for new customers, in terms of its accepted repayment vehicles, by placing a minimum value of £1m on a pension fund and a minimum value of £50,000 for investments.
Minimum values will be waived for further advance customers.
The latest move aims to ensure borrowers can repay the capital at the end of the term.
Martin Wheatley, Financial Conduct Authority chief executive designate, warned in March of an interest-only “ticking time bomb” for borrowers who lack a feasible way to repay the capital at the end of the term.
A number of lenders have significantly tightened their interest-only criteria since the start of the year, with many capping their maximum LTV at 50% while The Co-operative Bank pulled out of interest-only altogether.
Ray Boulger, senior technical manager at John Charcol, says: “It is hard to argue with what Lloyds group is doing, although it will not be helpful for those wanting a further advance.”