Lenders to Regulate Interest Only Mortgages

More and more mortgage lenders plan to tighten the criteria for interest only loans. About one million home owners are likely to get affected by this threat.

The Coventry Building Society has already stopped paying interest only mortgages to first time buyers. Other lenders are also likely to follow this in future when the Financial Services Authority (FSA) raised their concerns on the issue.

According to the authority, during the period 2005-2009, more than a million home owners were offered interest only loans. Unless they prepare a plan to pay the capital, they would be under great pressure from their lenders to pay back the money. If the lenders stop interest only loans, these borrowers would be forced to take a remortgage on a loan repayment deal.

On a monthly basis the loan repayment deal cost a little higher than interest only mortgages.

The lenders now insist for other options like insurance or investment policy to cover the outstanding at the end of the term, as a measure if the borrowers fail to repay the loan.

Nationwide requires to have at least £150,000 equity in the property and the loan should be less than 66% of the value.

Santander will be giving only up to 75% of the value of the property as interest only loan. In the case of Halifax and Cheltenham & Gloucester, interest only mortgage is available only up to £500,000.

The Financial Services Authority plans to have more consultation on the issue.

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