Any mortgage borrower in the UK is likely to be aware of the tough lending conditions that have dominated the market in the last few years. Lenders have tightened their criteria and getting a mortgage has become much harder than it was in the boom years.
The goal posts continue to move even now, as lenders continue to make changes to their lending criteria. The most notable recent example is the renewed focus on interest only lending.
The market had already limited the typical maximum for interest only to 75% of the property value. Lenders such as Santander, Nationwide, Coventry BS and Leeds BS have all now cut this to a maximum of 50% of the property value. If the mortgage is greater than half the property value then the whole mortgage must be taken on a repayment basis.
Others have left their maximum at 75% loan to value but toughened the requirements for a repayment vehicle to be deemed acceptable. For example, Halifax now requires an equity ISA fund to be at least £50,000 and even then will only use 80% of the current value to support interest only borrowing.
Some, such as Natwest, have decided to limit the client profile to which they will offer interest only and some have launched specific products for interest only borrowers.
These changes add up to a severe tightening around interest only lending and will force many borrowers to rethink their repayment strategy. Depending on the repayment vehicle and/or the loan to value there may be limited options available when they come to remortgage.
It makes sense for borrowers to remain abreast of these changes, which now mark a definite market shift not isolated cases. That trend is only likely to gather pace as lenders become increasingly concerned that they will be the last man standing, attracting too much business on an interest only basis as a consequence.
Interest only mortgages are therefore fast becoming a niche product and repayment mortgages will represent an even larger majority of new mortgage lending. As a result interest only borrowers should consider how they might deal with the new landscape and limit the risk of becoming a mortgage prisoner.
David Hollingworth
