Lloyds tightens interest-only lending

Lloyds Banking Group has tightened its criteria further on interest-only mortgages, cutting its maximum loan-to-value for interest-only lending through its Halifax brand from 85 to 75 per cent.

The move comes as part of an ongoing strategic review by Lloyds on its interest-only proposition, which saw it increase the price of interest-only mortgages in March.

Last May, the group also announced that borrowers will no longer be given the option of interest-only repayments if they are borrowing more than £500,000. The lender also tightened its list of acceptable repayment vehicles for interest-only loans.

The latest change means that new borrowers will only be able to borrow up to 75 per cent of a property’s value on interest-only - this includes mortgages where all or some of the lending is on an interest-only basis.

Lloyds said the new rules will come into effect from 6th April and will also apply to any existing customers that want to port their mortgage.

Over the past year, high street lenders have been restricting their lending criteria on interest-only mortgages in reaction to the regulator’s probe into the sector. The Financial Services Authority (FSA) is set to announce draft proposals for interest-only mortgages later this year amid concerns that they are being used by borrowers who have no repayment method in place.

Lloyds said its latest changes mean that its interest-only lending policy is “aligned” across all of its mortgage brands within the group.

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