Halifax Tightens Interest Only Loans
Following the Financial Services Authority’s (FSA) proposals under the Mortgage Market Review (MMR) a number of lenders in the home owner loan market in the UK have tightened their criteria when it comes to offering interest only loans to potential borrowers.
Despite the fact that the FSA has said that it will not place an outright ban on interest only loans, several lenders have withdrawn form offering this type of loan, insisting that borrowers take out a full repayment loan instead, as this presents a lower risk to the lender and supports affordability for the loan.
The Halifax has been the latest to alter its criteria for interest only loans, tightening the requirements to make it more difficult for someone to be accepted for this type of home owner loan, which brings the lender in line with the rest of the Lloyds Banking Group, which took a similar view several months ago.
Although the Halifax will still offer interest only loans to new and existing borrowers, it will be up to the potential borrower to be able to prove that they have an appropriate repayment vehicle in place to repay the loan at the maturity date. This would include things like an endowment policy or an ISA investment, for example.
The new criteria will apply to both people looking for a new loan, as well as those existing borrowers who want to switch their home owner loan to an interest only basis. The changes will come into effect on the 31st May this year.
A spokesperson for the Halifax said “This move aligns Halifax interest only loan policy with the approach for mainstream lending across all brands and channels within the group. It is important that we can see that customers looking to borrow on an interest only basis have an appropriate repayment plan in place.”
