Follow this topicInterest-only mortgages: the banks that will still lend
Interest-only mortgages are dying out but several lenders still provide them, with strict conditions.
The interest-only mortgage market has regularly hit the headlines this year as a number of major providers have tightened lending conditions or pulled out of the market altogether.
Yorkshire Building Society was the last lender to withdraw from the market back in March because of the general downward trend in these types of mortgages.
HSBC also changed the way it provides interest-only mortages, restricting them only to Premier banking customers.
This followed on from Coventry Building Society, NatWest and RBS, Nationwide and the Co-operative which have all announced withdrawals from interest-only lending on residential deals.
But there are some providers who still supply these mortgages, albeit with extremely strict lending criteria.
Here is a list of the major providers still in the market.
Lenders in the interest-only market
|
Provider |
Max LTV |
|
Nottingham Building Society |
80% |
| Aldermore | 80% |
|
Lloyds Banking Group (including Halifax, Lloyds TSB and Cheltenham & Gloucester) |
75% |
|
Barclays |
75% |
|
HSBC (Premier customers only) |
75% |
|
Clydesdale Bank (through a Broker to Private Banking customers) |
75% |
|
Bank of Ireland |
75% |
|
Virgin Money (including Northern Rock) |
70% |
| Post Office | 60% |
|
Skipton Building Society |
60% |
|
Leeds Building Society |
50% |
|
Santander (through a broker) |
50% |
Lending criteria
In order to be approved for an interest-only mortgage, most lenders now require a deposit of around 40% and many aren’t available to first-time buyers.
On top of this borrowers will also have to prove they’re able to repay a loan. Although each lender has its own criteria, typical methods of repayment include: an endowment, a cash lump sum from a personal or occupational pension plan, an equity ISA or the sale of an investment property or a second home. These generally need to have been in place for at least six months at the time the mortgage is applied for.
However some won’t accept cash savings, like ISAs, or a sale of a business or mortgaged property as a repayment model. Borrowers may also be required to earn a certain amount.
If you’re planning on paying back the loan through downsizing or selling a property, many lenders won’t accept this. Even if they do the deposit is likely to rise to 50%.
Interest-only mortgages
Lenders have been clamping down on these mortgages for some time and it’s likely more will follow suit in pulling out of this market.
Interest-only mortgages were created to let borrowers pay off their capital debt in a lump sum when the mortgage term was over. Your monthly repayments would only be to cover the interest on the loan, not the actual loan itself.
Problems occurred with interest-only mortgages because before the credit crunch many borrowers were allowed to take out these products without having a plan for paying back the loan.
And now the Financial Conduct Authority, the new financial regulator, has ordered lenders to communicate with interest-only borrowers to ensure they are aware of how likely they are to be able to pay off the mortgage at the end of the term. Read Mortgage lenders to contact interest-only borrowers to address shortfalls.
What if you’re on an interest only mortgage?
The lenders who have already announced a removal from this market have said nothing will change for existing customers. However, it does further reduce choice if they want to remortgage.
If you are having difficulties, read Your options if you’re struggling to pay off your interest-only mortgage.
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