» New rules on interest only mortgages

Banks dictate tougher criteria

Article Published: 16th February 2012

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Tough rules have been introduced by lenders for customers looking for interest only mortgages. Santander is now insisting on a 50 per cent deposit and Lloyds has issued terms for specific assets it will accept as "repayment vehicles. The accepted repayment vehicle must have a minimum value of £50,000. The minimum deposit or equity required for interest-only loans is unchanged at 25 per cent loan to value.

One of the main repayment vehicles to be disallowed is cash savings. Lloyds will also expect a 20 per cent margin of safety in the valuation of other assets such as shares or other properties.

Borrowers can repay their loans through the sale of a residential property as long as the current equity is worth more than £50,000; up to 80pc of the current equity can be used. With pensions the current fund value must exceed £1m and up to 25 per cent of current fund value can be used.

A spokes man for Lloyds said: "We review interest-only criteria and risk controls on an ongoing basis. Following recent changes in the market for interest-only mortgages, we have updated the policy for acceptable repayment vehicles.

"The updated criteria, which will apply from Thursday 16 February, will ensure that all interest-only borrowers are in a position to repay their loan in full at the end of the term, in line with our responsible approach to this type of lending."