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Lloyds Banking Group Interest Only Lending

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Email from Lloyds, no more pure interest only lending.

Abbey have already stopped pure interest only mortgages

I guess other lenders will follow

Dear Intermediary,

Following our strategic review of interest only lending, which we communicated to you in May, we would like to update you on our continued activity in this area.

Acceptable repayment vehicles for interest only lending are set out in the list below. Mainstream Lloyds Banking Group brands will only accept vehicles on this list.

The Group will shortly be randomly selecting cases and asking you to provide paperwork which evidences the repayment vehicle stated on the mortgage application. This sampling will be on cases submitted after 15 October 2010 and will be carried out after the offer stage. As a responsible lender, it is important for us to undertake random sampling, which is a process already in place for other areas within Lloyds Banking Group.

In order to satisfy a sampling request, you will need to provide the following:

Endowments

Copy of the latest projection statement dated within the last 12 months

Stocks & Shares ISA

Copy of the latest investment statement dated within the last 12 months

Unit Trusts/Open Ended Investment Companies (OEICs)

Copy of the latest investment statement dated within the last 12 months

Pensions

Copy of the latest projection statement dated within the last 12 months

Investment Bonds

Copy of the latest investment statement dated within the last 12 months

UK Stocks & Shares

Copy of the share valuation on date of assessment

Savings (UK Sterling)

Copy of passbook/statement of balance within the last 12 months

Sale of Second Home (UK)

Property details, amount of any mortgage debt and mortgage provider. (Property valuation and land registry search carried out by us if needed e.g. if the property is unencumbered).

Should you be unable to satisfy a sampling request, we will contact your client directly to request the appropriate documentation.

As with all lending decisions, if we do not receive the appropriate documentation when requested, we may have to review the original application.

For more information, please refer to one of the following intermediary brand websites:

Halifax Intermediaries

C&G Intermediaries

Scottish Widows Bank

LTSB Scotland

Thanks for your continued support.

Peter Curran

Head of Intermediary Distribution, Lloyds Banking Group

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Email from Lloyds, no more pure interest only lending.

The Group will shortly be randomly selecting cases and asking you to provide paperwork which evidences the repayment vehicle stated on the mortgage application. This sampling will be on cases submitted after 15 October 2010 and will be carried out after the offer stage. As a responsible lender, it is important for us to undertake random sampling, which is a process already in place for other areas within Lloyds Banking Group.

Is that a QUICK..... BUY BUY BUY before 15/10?

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The Group will shortly be randomly selecting cases and asking you to provide paperwork which evidences the repayment vehicle stated on the mortgage application. This sampling will be on cases submitted after 15 October 2010 and will be carried out after the offer stage. As a responsible lender, it is important for us to undertake random sampling, which is a process already in place for other areas within Lloyds Banking Group.

How about checking all applications, that might really stand a chance of reducing mortgage fraud:D

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How about checking all applications, that might really stand a chance of reducing mortgage fraud:D

What this does is reduce available funds as most people can not afford today's prices on a repayment mortgage. so prices will have to come down in-line with peoples affordability.

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there you go...sampling and PROOF after the approval....then they find out it was a liar loan?. probably why there are no cash buyers in the completions figures...up to half of all mortages FAIL.

for me, as a saver, my bank should be 100% sure the money they are lending to a prospect is as safe as possible....otherwise...how can they describe themselves as SAFE?

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The FSA won't stand for just random checks, lenders don't get much past them.

Randomly selecting 100% to check sounds much better:)

I'm guessing that Lloyds reckons that the CML lobbying against the FSA changes is going to have no effect if they are starting to put the changes in place?

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Randomly selecting 100% to check sounds much better:)

I'm guessing that Lloyds reckons that the CML lobbying against the FSA changes is going to have no effect if they are starting to put the changes in place?

Lloyds should do 100% checks and the FSA the one that does random checks.

If Lloyds do random checks and the FSA do random checks it shows how useless our regulation is. One in how many interest only mortgages will actually get checked?

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there you go...sampling and PROOF after the approval....then they find out it was a liar loan?. probably why there are no cash buyers in the completions figures...up to half of all mortages FAIL.

for me, as a saver, my bank should be 100% sure the money they are lending to a prospect is as safe as possible....otherwise...how can they describe themselves as SAFE?

Thinking another way is, all the lenders were complicit in giving out these loans over the last decade and taking "up front" fees, commissions and bonus payouts.

The punters if repo'd now (due to no repayment vehicle) will get hammered with all lawyer/ bank fees taken from the rise in value of house!

So the the bstard banks win everything - although they are 50% to blame!

Edited by erranta

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Lloyds should do 100% checks and the FSA the one that does random checks.

If Lloyds do random checks and the FSA do random checks it shows how useless our regulation is. One in how many interest only mortgages will actually get checked?

If the checks really are random, they will work. You only need to take about 100 out of several million, to find if you have a systemic problem, probably less than that.

Of course if you were a bank, and you could choose what the FSA checked, then it wouldnt be random. In which case you need to check them all. Mind you, the FSA cant check millions of them.

So they have to do random checks.

And if that random sample reveal systemic mortgage fraud, then Lloyds has better prepare themselves for receiving a minor fine.

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What this does is reduce available funds as most people can not afford today's prices on a repayment mortgage. so prices will have to come down in-line with peoples affordability.

We will have to wait a while unfortunately as there aren't the driving forces of high interest rates etc... to push them down, it will be long slow and drawn out.

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As a Mortgage Broker id become used to people (In the south) relying on Interest only, and being scared off from a repayment mortgage (The real cost).Would rather spend it down the pub I guess, or on a new plasma.

As we know though this has and was common and despite with any change of policy a small proportion will suffer. But the move by the FSA/Banks is long overdue. I have found however more people ask for Repayment over Interest only in the last 12 months. I think most first time buyers having watched the drops know the realities of negative equity and even if they pay over 35 years want to opt for this route. The ones that are f%cked are the ones already in the system. Also people who are over 45 are faced with a short mortgage term on a Repayement basis. suddenly making the purchase unviable. A small price to pay....

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Also people who are over 45 are faced with a short mortgage term on a Repayement basis. suddenly making the purchase unviable. A small price to pay....

Average FTB is almost 45 now (exaggeration. I know it's only 37)

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I know, Im sure in time it will be looked at. But Lloyds for example maximum age is 65 (70 if you can justify with the type of job you do). Some do 75 (santander etc) Halifax until very recently had no maximum age of their mortgages. So once over 70 if you have a pension to support the mortgage you could have one for as long as you liked. I took a case from the HSBC on that basis. she was a retired school teacher on a 30k a year pension. She had been on interest only with the hsbc but wanted to change to Repayment mortgage. However due to her age they would only give her a 6 year term. Which was totally not affordable. Halifax done a 25 year Repayment, That was less than 6 months ago. Yet if she came to me now I wouldnt be able to help. Thats the problem with these blanket changes. Some people will lose out where they want something but cant have it despite it making perfect sense.

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I'm starting to believe that the FSA are actually serious about these new rules.

Then we could have a situation where house prices fall dramatically even with low IRs. And if IRs stay low the bonus would be fewer repossessions, which I'm in favour of because I don't actually like seeing people being repossessed.

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I think a serious percentage of mortgagees cannot afford to repay their mortgages, ever. They mainly plan to downsize when they retire. Of course, this relies on someone else taking on a mortgage they cannot afford to repay, ever, and in turn downsizing when they retire. If a new IO mortgage isn't available then a vital prop has been kicked away from the foundations of the whole pyramid scheme.

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If the checks really are random, they will work. You only need to take about 100 out of several million, to find if you have a systemic problem, probably less than that.

Of course if you were a bank, and you could choose what the FSA checked, then it wouldnt be random. In which case you need to check them all. Mind you, the FSA cant check millions of them.

So they have to do random checks.

And if that random sample reveal systemic mortgage fraud, then Lloyds has better prepare themselves for receiving a minor fine.

I wasn't suggesting the FSA should check millions. If we have say 50,000 mortgages a month in total, that's only 600,000 a year. They won't all be Interest Only and they won't all be Lloyds. Therefore it seems that Lloyds should have enough resource to check their share and the FSA to make random checks overall.

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I sent the original posters email to Hector Sants at the FSA along with some comments along the lines of that Lloyds should be checing ALL mortgages and the FSA doing random checks. Also suggesting that the FSA are asleep at the wheel again and lining up the next crisis as regulation hasn't yet changed since the financial crisis started.

From the read receipts, two of his subordinates have read it and now the man himself.

Obviously I expect Lloyds will be subject to a major clampdown now the top man is involved. They wouldn't pay Hector nearly £800k a year if the FSA remainded so ineffective would they?

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I think a serious percentage of mortgagees cannot afford to repay their mortgages, ever. They mainly plan to downsize when they retire. Of course, this relies on someone else taking on a mortgage they cannot afford to repay, ever, and in turn downsizing when they retire. If a new IO mortgage isn't available then a vital prop has been kicked away from the foundations of the whole pyramid scheme.

and this is the next ticking time bomb with over 30% of all mortgages on I/O

the lenders are shittingg themselves

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I wasn't suggesting the FSA should check millions. If we have say 50,000 mortgages a month in total, that's only 600,000 a year. They won't all be Interest Only and they won't all be Lloyds. Therefore it seems that Lloyds should have enough resource to check their share and the FSA to make random checks overall.

Lloyds could get the Mortgage Broker to send the evidence in with the application. Although, the problem with most of these vehicles is that you cannot assign them to Lloyds, so even if you show them an ISA with a 400 pounds per month investing into it, there is nothing to force the applicant to continue paying in the 400 per month.

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AMI responds to the interest-only section of FSA MMR consultation paper on responsible lendingFSA MMR consultation paper on responsible lending contained a separate, shorter consultation period, on interest-only mortgages.

We welcome FSA's continued engagement and open approach to the MMR consultations.

However, the fragmented approach taken, by breaking the various consultation papers into separate subject issues, has made it difficult to fully respond to these issues and to consider, in full, the cumulative effects of the MMR proposals on the mortgage market.

Interest-only mortgages - consumer benefits

An interest-only mortgage is a key product with great relevance to a significant minority of consumers in the current and future mortgage market.

Interest-only mortgages allow consumers the flexibility to choose how they repay the capital element of their mortgage.

However, consumers need to be aware of the risks associated with taking out such a mortgage.

Appropriate advice is the key to ensuring that those consumers considering an interest-only mortgage make the right choice and have a suitable repayment method in place.

Lender responsibility

Whilst there are obvious risks to consumers if they are unable to repay the capital element of the interest-only mortgage at the end of the term, lenders will also be exposed to these risks.

Lenders will want to protect themselves from incurring a loss if the consumer does not have sufficient funds to repay the capital at the end of the mortgage term.

As such, lenders already apply risk controls to limit any potential loss to them.

Many lenders have already changed their positions on interest-only mortgage lending in light of changing market conditions and current perceptions of risk.

Lenders have altered their criteria on interest-only lending by reducing maximum loan-to-value levels, placing restrictions on certain consumer groups and limiting the sums they are prepared to lend.

This has resulted in interest-only sales reducing, compared to capital and repayment mortgages, from around 25% in 2007 to 14% in 2009.

As such, there is strong evidence that lenders have already reacted to changing market conditions without the need for regulatory intervention.

The likely outcome of FSA's proposals, if implemented, would be lenders withdrawing the majority of their interest-only products from the mortgage market.

The remaining limited number of niche products would be insufficient to meet consumers' needs and to support a recovery in the housing market.

Lenders checking the validity and adequacy of the repayment methods

Under the proposals lenders would be required to consider the validity and adequacy of the repayment method selected at the inception of the interest-only mortgage and also throughout the duration of the mortgage.

There is obvious merit in lenders checking the validity of the repayment method at the outset of the interest-only mortgage.

However, whether the validity and adequacy should be monitored throughout the term of the mortgage needs to be balanced against the cost of doing so and the outcomes it produces.

We do not believe that lenders should be responsible for assessing the anticipated performance of investment backed repayment vehicles.

Lenders are not in a position to make assumptions about performance or about any subsequent changes that could be required.

If the consumer approaches the lender pro-actively about such issues then they should be encouraged to seek appropriate financial advice.

Expecting lenders to make a judgement on the adequacy of the repayment method will substantially increase the regulatory risk profile of lenders.

This could lead to further measures been taken over the types of repayment methods they will accept.

Some lenders could view the risks as greater than the benefit, so withdrawing this option for consumers altogether.

In addition, if the repayment methods are no longer consider to be valid and/or adequate would this lead to lenders being forced to place consumers onto capital repayment mortgages, regardless of whether this was right for the consumers' circumstances, in order to comply with the regulators rules.

Lack of justification for further product regulation

We have not seen sufficient justification for limits to be placed on loan-to-value, loan-to-income or equity levels at a regulatory level.

An outright ban on using the sale of a property would exclude too many consumers for whom this repayment method is valid.

Firms should be allowed to continue to apply controls in line with their own risk- based commercial judgements.

However, consumers should have some level of responsibility for ensuring they can repay their interest-only mortgage at the end of the term, in the same why in which they have responsibility for ensuring that they can repay the mortgage on a capital and repayment basis.

Social impacts of restricting interest-only mortgages

The social impacts of restricting interest-only mortgages need to be considered further.

Consumers who do not become owner-occupiers are left with only one real alternative, to rent privately or through social housing.

However, in many areas of the UK renting is more expensive than purchasing a property on an interest-only basis.

Consumers who purchase a property on an interest-only basis may benefit from some level of capital appreciation and an erosion of their debt, in real terms, due to the long-term effects of inflation.

They may not necessarily be relying on being left with a given sum of equity at the end of the mortgage term.

What is essential is that consumers are aware that there is no guarantee that the sale price of the property will be sufficient to repay the mortgage at the end of the term.

In addition, consumers may have certain locational requirements that renting options cannot satisfy and they wish to benefit from the greater level of security offered through being an owner-occupier, compared to a rental tenant.

We are concerned about those consumers who are currently on interest-only mortgages, with a current valid repayment method in place, who may become mortgage prisoners if the requirements around their chosen method of repayment change.

If FSA is to implement any of the proposals made in this CP, it will need to ensure that appropriate transitional arrangement are in place for those consumers who will fall outside of the criteria for holding a valid repayment method.

Association of Mortgage Intermediaries response to FSA’s consultation paper 10/16 MMR Responsible Lending – interest-only

AMI continues to meet and engage with FSA on the MMR. We will be responding in full to the remainder of the FSA MMR consultation paper on responsible lending by 16 November.

The way I read into that is that the FSA will make the lender liable to check the performance of the investment. So with the 80;s in mind I think thats goodbye to Interest only. Certainly at the higher end of things. I think sub 75% would be silly and is up to the customer. In my view.

The way I read into that is the

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Although, the problem with most of these vehicles is that you cannot assign them to Lloyds, so even if you show them an ISA with a 400 pounds per month investing into it, there is nothing to force the applicant to continue paying in the 400 per month.

this willl be the next loophole/scam, unless FSA insist on regular checks throughout the lifetime of the mortgage

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  • 140 Brexit, House prices and Summer 2020

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