Lloyds clamps down on interest-only mortgages

Lloyds Banking Group (LBG) is further tightening the criteria it applies to its Halifax-branded interest-only mortgages and scrapping them completely on homeloans over £500,000.

The lender will remove three of its existing repayment vehicle options from interest-only applications.

Aspiring borrowers will not in future be given the option of selling their home, selling their business or using an inheritance as a means of repaying the capital owing at the end of the mortgage term.

In recent months LBG has applied a price weighting to interest-only Halifax mortgages taken out through brokers. Borrowers are now charged 0.2% more on both tracker and fixed rates if they opt for an interest-only arrangement, rather than a repayment-type mortgage.

"We believe we are acting in a way which is sensible for us and our borrowers," said LBG sales director for mortgages Nigel Stockton.

"While we are not saying that interest-only mortgages are a bad thing in themselves, it is in neither parties' interest for a borrower to take on an uncertain repayment vehicle for their mortgage.

"Having seen interest-only soar to around 25% of our applications since the credit crisis started, we deemed it timely to carry out a strategic review, and we believe these criteria changes are apposite."

The changes will apply on Halifax Intermediary mortgages as of Thursday 13th May, and will be implemented in Halifax branches on Monday 17th.