LLoyds Banking Group borrowers with an interest-only mortgage who are looking for a further advance will now be asked to provide evidence of a repayment plan for the entire loan.
Previously, Lloyds group asked borrowers to provide evidence of a repayment method for the additional amount that they wished to borrow. But, from May 28, borrowers have to show evidence that they can pay off the entire loan, if the existing mortgage is interest-only.
In February, Lloyds group tightened its interest-only criteria, in terms of its accepted repayment vehicles, for new customers by placing a minimum value of £1m on a pension fund and a minimum value of £50,000 for investments. These minimum values will be waved for further advance customers.
The move is to ensure borrowers can repay the capital at the end of the term.
In March, FCA chief executive designate Martin Wheatley warned of an interest-only “ticking time bomb” who do not have 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 loan-to-value at 50 per cent 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 Halifax are doing, although it will not be helpful for those who want a further advance and it will mean less people will be able to.”