Lloyds Cut Interest Only Home Loans

Fri, 14 May 2010

UK borrowers are being warned that home loan repayments could rise considerably as a result of the country’s largest lender reducing the number of interest-only mortgage deals available. Lloyds has set a cap on the amount that buyers can borrow on interest-only mortgages, with those wishing to borrow higher sums having to agree to repay capital as well as interest. Other banks and lenders are expected to announce similar limits, in a move that will please the Financial Services Authority, which recently indicated that banks needed to become tougher on the cheap home loans .

Interest-only mortgages have become much more popular since the 1980s owing to the proliferation of endowment policies . However, increasing property prices and a gradual abandonment of endowments meant that borrowers had interest-only loans with no means of paying off their debts . It is estimated that, by value, 43 per cent of the 11.4 mortgages in Britain are interest-only.

Lloyds has set its limit at £500,000, meaning that credible first time buyers should still be able to obtain interest-only deals. However, Lloyds has changed its pricing structure so that interest-only borrowers will be given interest rates 0.2 per cent higher than rates on repayment deals.
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