Is Lloyds bank looking to phase out interest only mortgages?
Lloyds bank recently announced plans to cap interest only mortgages at £500,000 amid signs that a number of mortgage institutions in the UK are looking to phase out interest only mortgages. When you also consider that Nationwide is reviewing its interest only mortgage range and Santander recently cut the loan to value percentage from 85% to 75% it would seem that the days may well be numbered for interest only mortgages in the UK. So why are interest only mortgages on the way out?
The major problem with interest only mortgages is the fact that other investment vehicles such as endowments need to be set up in tandem with interest only payment plans. So in effect capital payments are paid into other investment vehicles in the hope they will increase in value to cover the initial mortgage capital at the end of the mortgage term. As we have seen over the last few years, more and more people have seen there are endowments and other investment vehicles fall short of the amounts due and many have been left with significant additional payments to make.
This would appear to be the main reason why companies such as Lloyds bank, Nationwide and Santander are reviewing their own interest only mortgage arrangements and others are almost certain to follow.
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