Anyone with an interest only mortgage that is currently on a lenders’ own variable rate (Standard Variable Rate) needs to think very seriously about protecting their position following the recent sudden surge in lenders reducing the Loan to Value on interest-only mortgages to just 50%.
Staying as they are is effectively making themselves ‘un-mortgagable’.
Lenders cite this as “prudent” borrowing but anyone who currently has an interest-only mortgage at a higher LTV than 50% needs to consider their limited options quickly.
The latest changes to interest-only mortgages have seen Abbey, Leeds and Coventry cut LTVs from 75% to 50%, Nationwide cut from 66% to 50%, Newbury cut from 75% to 70%, Skipton from 75% to 60%, Manchester cut from 70% to 60%, Teachers Building Society cut from 70% to 50% and HSBC cut from 80% to 75%.
Problems may well arise if there is a need to borrow additional money for home improvements, such as building extra bedrooms etc because this will be deemed a new loan.
Clients in this situation will only be able to borrow around 50% of the house value, which in most cases will be less than the original mortgage.
The end result is that many people who chose an interest-only mortgage because it was cheaper and are at their maximum monthly outgoings will find themselves unable to move should they need to - they are in fact under a form of house arrest.
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