Interest Only Loans See Reduction In Numbers
The latest statistics published by the Financial Services Authority (FSA) have revealed a significant fall in the number of interest only loans being taken out by borrowers, as banks and building societies continue to tighten their lending criteria and become ever more reluctant to offer this type loan, particularly without any kind of repayment vehicle.
Although the number of interest only loans actually increased during the first three months of this year, over the course of the second quarter, only around a third of all loans were taken on an interest only basis, a drop of 3.5 per cent.
The recent Mortgage Market review (MMR) conducted by the FSA, proposed that there should be a ban on interest only loans, as well as self certification loans, as both these areas show a likelihood of a lack of affordability for the loan from the borrower.
Although these proposals have not yet become regulation, it seem that many lenders are already taking the message on board and are not allowing interest only loans, unless there is a suitable repayment vehicle in place to cover the loan in full.
Whilst lenders are tightening their lending criteria in one area, in other areas things appear to be relaxing slightly, as the average maximum loan to value has increased steadily over recent months, with more lenders offering loans of up to 90 per cent loan to value.
Paul Diggle of Capital Economics commented on the figures, he said “The latest mortgage lending statistics do not offer a clear message on whether credit conditions are loosening or tightening.”
“Although lenders appear increasingly reluctant to lend on an interest only basis or to borrowers who are unable or unwilling to provide evidence of income, there are tentative signs that loan to values are improving, albeit from very subdued levels.”
