Over the last 2 years the FSA have put many restrictions on lenders to tighten up their lending policy and assess clients on affordability for interest only mortgages. Changes in the market place for interest only mortgages from high street and an obvious private bank has become normality as they have rejected to lend to clients who require interest only mortgages and do not a specific repayment vehicle, may this be investments, savings, pensions or even an endowment.
However this is changing, over the last week I have seen a major high street bank reduce is criteria to help the ever increasing situation. This is to offer a 75% LTV mortgage 50% on interest only mortgages and 25% on repayment, another looking to offer lump sum bullet repayments. This is exactly what I believe is sensible lending, as a mortgage broker it is also my job to assess affordability and I feel for the type of clients I provide mortgages to, requires a bank that can assess an individual on the intention to repay the mortgage.
With high net worth clients I see the employed receiving large lump sum bonuses and self-employed taking a large dividend each year. This is where many private banks have got it right and long may it continue. They offer interest only mortgages on assessment of the client background and require element of repayment of the loan over a given period of time, known as amortisation.
How we can help with interest only mortgages
To give an example of the flexibility I have when placing mortgages, I recently completed a remortgage for my client who had a dip in income in the last 3 years. With an acceptable reason in place, the client wanted to borrow 85% LTV on his main residence to enable him to extend a short lease on his central London property. I offered the lender the option to cross charge the loan against another property which the client owned. This enabled me to bring the overall loan to value down to 65%.
The lender was very happy to proceed and offered the full loan on an interest only term of 5 years with an element of the loan to be repaid over the first 2 years, thus reducing the overall loan to 60% loan to value and the sale of properties used as the form of repayment at the end of the term.
We split the loan to offer a 5 year Fixed rate and a 3 year Variable Tracker rate to with no early repayment charges , to give the client the flexibility of reducing the loan with no penalties and fulfilling the lenders request.
Lenders with a sensible approach to affordability and lending criteria will gain my business and I hope to see more lenders following suit.