HouseDog Posted March 20, 2012 Share Posted March 20, 2012 http://www.guardian.co.uk/money/2012/mar/20/nationwide-interest-only-mortgages [Tuesday 20 March 2012] Nationwide tightens up on interest-only mortgages Nationwide slashes LTV on its interest-only deals, raising fears it will leave thousands of borrowers as 'mortgage prisoners Nationwide building society has slashed the maximum loan-to-value (LTV) ratio on its interest-only mortgages from 75% to 50%, leading to fears that interest-only deals will eventually disappear, and leaving thousands of "mortgage prisoners" unable to switch to new deals. The rule change means borrowers will have to stump up a deposit of £80,773 to afford an average home in England and Wales on an interest-only basis. The lender, which lowered the LTV for interest-only borrowers from 85% to 75% in April 2011, said the policy was a response to similar changes by other lenders. Industry insiders said Santander's decision in February 2012 to reduce its maximum lending on an interest-only basis to 50% LTV led to borrowers flocking to Nationwide for interest-only deals. Martyn Dyson, head of mortgages at Nationwide, said: "A number of major lenders have recently restricted their criteria for interest-only mortgages, and Nationwide needs to be able to manage application levels in a prudent and sustainable manner. The group is therefore amending its policy to a maximum of 50% LTV." As well as slashing the LTV on interest-only products, high street lenders have also begun introducing stricter rules regarding which savings and investment vehicles can be used to repay interest-only mortgages. In February 2012 Lloyds Banking Group announced it would no longer accept cash savings, including Isas, as an acceptable way to fund the repayment of an interest-only mortgage. Instead, Lloyds – which includes Lloyds TSB, Bank of Scotland, Halifax and Cheltenham & Gloucester – views investment products such as endowments and equity Isas as better longer-term vehicles for settling an interest-only mortgage. Barclays also requires interest-only borrowers to use only approved investment vehicles such as endowments, mutual funds or equities, while Royal Bank of Scotland, which has a 75% LTV for interest-only mortgages, will not allow first-time buyers to take out a mortgage of this type at all. Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "It's like a pack of cards – one lender folds and the others inevitably follow. It is a shame for borrowers, but no real surprise. "Interest-only borrowing is not necessarily reckless borrowing, as long as there is a repayment strategy in place. However, we are getting closer and closer to seeing it disappear, making mortgage prisoners of those who have an interest-only mortgage unless they can switch to repayment." David Hollingworth of London & Country Mortgages said: "This is the latest nail in the coffin of interest-only mortgages. Those with interest-only mortgages will need to think about the ramifications of these changes. It is likely to force a rethink of how to repay the mortgage, simply because of the level of equity in the home rather than the existence of a prudent repayment strategy." A Nationwide spokeswoman said existing customers would not be affected, even if they want to remortgage. However, if they need to take on additional borrowing the lender would "need to talk about affordability". If that additional borrowing breaks the 50% LTV ratio Nationwide would talk about switching customers to a repayment mortgage. The news comes just days after Martin Wheatley, a director of the Financial Services Authority, told the Treasury Select Committee about the "ticking timebomb that exists today": hundreds of thousands of people in their late-50s unable to repay one of the 1.5m interest-only mortgages due to expire in the next 10 years. ------------ Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted March 20, 2012 Share Posted March 20, 2012 Is this a margin call? Quote Link to comment Share on other sites More sharing options...
rantnrave Posted March 20, 2012 Share Posted March 20, 2012 Is this a margin call? Let's hope so Quote Link to comment Share on other sites More sharing options...
The Knimbies who say No Posted March 20, 2012 Share Posted March 20, 2012 (edited) http://www.guardian.co.uk/money/2012/mar/20/nationwide-interest-only-mortgages [Tuesday 20 March 2012] Nationwide tightens up on interest-only mortgages Nationwide slashes LTV on its interest-only deals, raising fears it will leave thousands of borrowers as 'mortgage prisoners Nationwide building society has slashed the maximum loan-to-value (LTV) ratio on its interest-only mortgages from 75% to 50%, leading to fears that interest-only deals will eventually disappear, and leaving thousands of "mortgage prisoners" unable to switch to new deals. The rule change means borrowers will have to stump up a deposit of £80,773 to afford an average home in England and Wales on an interest-only basis. The lender, which lowered the LTV for interest-only borrowers from 85% to 75% in April 2011, said the policy was a response to similar changes by other lenders. Industry insiders said Santander's decision in February 2012 to reduce its maximum lending on an interest-only basis to 50% LTV led to borrowers flocking to Nationwide for interest-only deals. Martyn Dyson, head of mortgages at Nationwide, said: "A number of major lenders have recently restricted their criteria for interest-only mortgages, and Nationwide needs to be able to manage application levels in a prudent and sustainable manner. The group is therefore amending its policy to a maximum of 50% LTV." As well as slashing the LTV on interest-only products, high street lenders have also begun introducing stricter rules regarding which savings and investment vehicles can be used to repay interest-only mortgages. In February 2012 Lloyds Banking Group announced it would no longer accept cash savings, including Isas, as an acceptable way to fund the repayment of an interest-only mortgage. Instead, Lloyds – which includes Lloyds TSB, Bank of Scotland, Halifax and Cheltenham & Gloucester – views investment products such as endowments and equity Isas as better longer-term vehicles for settling an interest-only mortgage. Barclays also requires interest-only borrowers to use only approved investment vehicles such as endowments, mutual funds or equities, while Royal Bank of Scotland, which has a 75% LTV for interest-only mortgages, will not allow first-time buyers to take out a mortgage of this type at all. Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "It's like a pack of cards – one lender folds and the others inevitably follow. It is a shame for borrowers, but no real surprise. "Interest-only borrowing is not necessarily reckless borrowing, as long as there is a repayment strategy in place. However, we are getting closer and closer to seeing it disappear, making mortgage prisoners of those who have an interest-only mortgage unless they can switch to repayment." David Hollingworth of London & Country Mortgages said: "This is the latest nail in the coffin of interest-only mortgages. Those with interest-only mortgages will need to think about the ramifications of these changes. It is likely to force a rethink of how to repay the mortgage, simply because of the level of equity in the home rather than the existence of a prudent repayment strategy." A Nationwide spokeswoman said existing customers would not be affected, even if they want to remortgage. However, if they need to take on additional borrowing the lender would "need to talk about affordability". If that additional borrowing breaks the 50% LTV ratio Nationwide would talk about switching customers to a repayment mortgage. The news comes just days after Martin Wheatley, a director of the Financial Services Authority, told the Treasury Select Committee about the "ticking timebomb that exists today": hundreds of thousands of people in their late-50s unable to repay one of the 1.5m interest-only mortgages due to expire in the next 10 years. ------------ Is this a bit unclear? An existing customer who wants to remortgage an IO at over 50% LTV will be ok, but an existing customer who has an IO with current LTV of 45% who wants to remortgage and take it to 55% will be swapped to repayment? Maybe I've read it wrong. edit wrong number used Edited March 20, 2012 by cheeznbreed Quote Link to comment Share on other sites More sharing options...
singlemalt Posted March 20, 2012 Share Posted March 20, 2012 Good news. Let's hope the other lenders still offering IO mortgages quickly follow suit. Quote Link to comment Share on other sites More sharing options...
singlemalt Posted March 20, 2012 Share Posted March 20, 2012 Is this a margin call? Let's hope so +1 Too right. Quote Link to comment Share on other sites More sharing options...
Monkey Posted March 20, 2012 Share Posted March 20, 2012 Is this a bit unclear? An existing customer who wants to remortgage an IO at over 50% LTV will be ok, but an existing customer who has an IO with current LTV of 45% who wants to remortgage and take it to 55% will be swapped to repayment? Maybe I've read it wrong. edit wrong number used that what i was reading, but i could be wrong Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted March 20, 2012 Share Posted March 20, 2012 Oh-Oh. Quote Link to comment Share on other sites More sharing options...
GeordieAndy Posted March 20, 2012 Share Posted March 20, 2012 Another little dent into HPI so I'm happy Quote Link to comment Share on other sites More sharing options...
The Knimbies who say No Posted March 20, 2012 Share Posted March 20, 2012 that what i was reading, but i could be wrong Ok, thanks for that. Quote Link to comment Share on other sites More sharing options...
sign_of_the_times Posted March 20, 2012 Share Posted March 20, 2012 does it apply to BTL mortgages too? that would be nice....... Quote Link to comment Share on other sites More sharing options...
Guest_James Toney_* Posted March 20, 2012 Share Posted March 20, 2012 does it apply to BTL mortgages too? that would be nice....... it would be nice, but it only effects people who want to re mortgage, if they dont they can quite happily carry on, or have i read it wrong Quote Link to comment Share on other sites More sharing options...
inflating Posted March 20, 2012 Share Posted March 20, 2012 it would be nice, but it only effects people who want to re mortgage, if they dont they can quite happily carry on, or have i read it wrong I think that's correct, yes IO should never never never have been allowed anyway, utterly useless FSA Quote Link to comment Share on other sites More sharing options...
thecrashingisles Posted March 20, 2012 Share Posted March 20, 2012 This really is scandalous. Britain is a nation of home owners. How can people be expected to put down that amount of money for a deposit? Quote Link to comment Share on other sites More sharing options...
trevor_1977 Posted March 20, 2012 Share Posted March 20, 2012 Why is everyone so against IO mortgages and what is the banks problem with using isa saving to pay of the actual loan .I see nothing wrong with this so long as you are putting aside enough each month to cover the repayment of the mortgage ,seems easy enough to work out how much this needs to be .But the banks want us to gamble with our money . Quote Link to comment Share on other sites More sharing options...
thecrashingisles Posted March 20, 2012 Share Posted March 20, 2012 Why is everyone so against IO mortgages and what is the banks problem with using isa saving to pay of the actual loan .I see nothing wrong with this so long as you are putting aside enough each month to cover the repayment of the mortgage ,seems easy enough to work out how much this needs to be Then why not have a repayment mortgage which will cost you less in the long run? Quote Link to comment Share on other sites More sharing options...
winkie Posted March 20, 2012 Share Posted March 20, 2012 Why is everyone so against IO mortgages and what is the banks problem with using isa saving to pay of the actual loan .I see nothing wrong with this so long as you are putting aside enough each month to cover the repayment of the mortgage ,seems easy enough to work out how much this needs to be .But the banks want us to gamble with our money . ...what is the point in doing that?.....we have today the lowest interest rates in history, pay your debt off as quickly as you can whilst you have the chance to pay it back at the cheapest price. £200,000 mortgage if interest rate stays at say 5.5%.....a repayment mortgage over 25 years interest payable £168,452. £200,000 mortgage if interest rate stays at say 5.5%....an Interest only mortgage over 25 years interest payable £275,000. Quote Link to comment Share on other sites More sharing options...
RufflesTheGuineaPig Posted March 20, 2012 Share Posted March 20, 2012 ...what is the point in doing that?.....we have today the lowest interest rates in history, pay your debt off as quickly as you can whilst you have the chance to pay it back at the cheapest price.£200,000 mortgage if interest rate stays at say 5.5%.....a repayment mortgage over 25 years interest payable £168,452. £200,000 mortgage if interest rate stays at say 5.5%....an Interest only mortgage over 25 years interest payable £275,000. Beat me to it - anyone "putting aside enough each month to cover the repayment of the mortgage" would have to be an utter moron not to be using the money to pay down the mortgage instead. There's no investment that will pay out better than paying down your mortgage Quote Link to comment Share on other sites More sharing options...
Venger Posted March 20, 2012 Share Posted March 20, 2012 Beat me to it - anyone "putting aside enough each month to cover the repayment of the mortgage" would have to be an utter moron not to be using the money to pay down the mortgage instead. There's no investment that will pay out better than paying down your mortgage. OK that all makes sense. Why is everyone so against IO mortgages and what is the banks problem with using isa saving to pay of the actual loan .I see nothing wrong with this so long as you are putting aside enough each month to cover the repayment of the mortgage ,seems easy enough to work out how much this needs to be .But the banks want us to gamble with our money. Yes; as a buyer, gamble with your own money, if you've actually got some. Many buyers have been willing to take a large interest only mortgages despite the logic above in repayment, jumping infront of someone financially better positioned as their competition, using the lenders interest only money. Tightening up interest only means sellers have fewer well positioned buyers able to meet their asking prices, thus more likely asking prices will have to fall. Quote Link to comment Share on other sites More sharing options...
SarahBell Posted March 20, 2012 Share Posted March 20, 2012 Why is everyone so against IO mortgages and what is the banks problem with using isa saving to pay of the actual loan .I see nothing wrong with this so long as you are putting aside enough each month to cover the repayment of the mortgage ,seems easy enough to work out how much this needs to be .But the banks want us to gamble with our money . I promise to put £x in my isa every month isn't the same as having £xxxx in your isa to pay off your mortgage. Even having £££ in your isa doesn't mean you don't fritter it away before paying the mortgage Quote Link to comment Share on other sites More sharing options...
Little Professor Posted March 20, 2012 Share Posted March 20, 2012 (edited) Why is everyone so against IO mortgages and what is the banks problem with using isa saving to pay of the actual loan .I see nothing wrong with this so long as you are putting aside enough each month to cover the repayment of the mortgage The point is most people were not putting aside enough each month, and in many cases were not putting anything aside each month. Plus cash ISAs are so easy to dip into to fund that holiday, new car or kitchen that you deserve becoz you're worth it. Edited March 20, 2012 by Little Professor Quote Link to comment Share on other sites More sharing options...
awaytogo Posted March 20, 2012 Share Posted March 20, 2012 Is this a margin call? No just playing it safe Quote Link to comment Share on other sites More sharing options...
the_duke_of_hazzard Posted March 20, 2012 Share Posted March 20, 2012 Beat me to it - anyone "putting aside enough each month to cover the repayment of the mortgage" would have to be an utter moron not to be using the money to pay down the mortgage instead. There's no investment that will pay out better than paying down your mortgage With 40% deposit you can (last time I looked anyway) get 2.5% mortgage. I'm getting 4% on my cash, so you can effectively "buy" a more expensive house than you have in cash by using the income differential to cover the remaining 60%. eg a simplified example: 100K house 70K savings 40K deposit 60K mortgage @ 2% = 1200/year 30K interest @ 4% a year = 1200/year Quote Link to comment Share on other sites More sharing options...
Ash4781 Posted March 20, 2012 Share Posted March 20, 2012 (edited) Martyn Dyson, head of mortgages at Nationwide, said: "A number of major lenders have recently restricted their criteria for interest-only mortgages, and Nationwide needs to be able to manage application levels in a prudent and sustainable manner. The group is therefore amending its policy to a maximum of 50% LTV." (from the article in OP) Don't panic! It reads like they were having mountains of paperwork from massive demand! Edited March 20, 2012 by Ash4781 Quote Link to comment Share on other sites More sharing options...
Democorruptcy Posted March 20, 2012 Share Posted March 20, 2012 (edited) With 40% deposit you can (last time I looked anyway) get 2.5% mortgage. I'm getting 4% on my cash, so you can effectively "buy" a more expensive house than you have in cash by using the income differential to cover the remaining 60%. eg a simplified example: 100K house 70K savings 40K deposit 60K mortgage @ 2% = 1200/year 30K interest @ 4% a year = 1200/year Is the 4% tax free? How long does the 2% last? If mortgage rates rise when the 2% ends can you exit the 4% to try find a better rate? Any exit penalty fees? If mortgage rates rose but saving rates lagged (like now) you would need a mortgage that allowed you to overpay using the £30k Edited March 20, 2012 by Democorruptcy Quote Link to comment Share on other sites More sharing options...
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