Lloyds adopts tough line on interest-only mortgages

Published 02nd Jun 2011

Homeowners wanting an interest-only mortgage at Britain’s largest bank must now prove they have substantial savings to pay off their loan.

Borrowers at Lloyds Banking Group, which includes Halifax and Cheltenham & Gloucester, are already restricted to borrowing up to 75 pc of the value of their home if they only want to pay the interest, but not the capital they owe, on their loan.

Now the bank is demanding evidence of specific types of repayment plans such as an endowment, Isas, pension, savings account or sale of an unmortgaged property.

In each case, borrowers must present the investment paperwork before a mortgage offer is given.

The bank will also make strict calculations on how much of the investment can be used to repay the mortgage.

For example, if someone plans to pay off their mortgage using a pension, the bank will only take into account 25 pc of the projected fund value, because that is the most they can take as a tax-free lump sum.

Melanie Bien, of broker Private Finance, says: ‘Something as simple as planned lump sum overpayments would not be acceptable, even though this is a perfectly reasonable method of overpayment.’

Proceeds from the sale of a business, mortgaged property or an inheritance are also not accepted by the bank.

A spokeswoman for Lloyds says the bank wants to ‘continue to lend responsibly’.

Source: ' ThisIsMoney '

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