Lloyds bank tightens regulations on interest only mortgages
Lloyds bank has this morning tightened its regulations on interest only mortgages suggesting that the sale of your main residence is no longer proof of an ability to repay your mortgage. The bank is now looking for additional investment vehicles such as endowments, pensions, Isas and share portfolios as backup in the event there is a shortfall on the sale of your main residence.
While to some people this may seem a rather strange move when you bear in mind that UK property prices appear to be moving forward, interest only mortgages have their own specific difficulties. While interest is paid off on an ongoing basis this leaves an enormous amount of capital to be repaid at the end usually from an endowment or some kind of investment vehicle. However, as we have seen over the last few years a number of people have seen their endowments and other investment vehicles fall short of the amount due at the end of their mortgage arrangement with the value of their homes often falling below the outstanding capital balance.
Lloyds bank will also accept repayment strategies such as the sale of a second home, sale of a business or downsizing of your home. It seems that the safety net of holding a property against outstanding mortgage arrangements will be no more for Lloyds bank customers looking at interest only mortgages.
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