Santander drops interest-only LTV to 50%

Santander is reducing the maximum loan to value on its interest-only residential deals to 50%, in a move it hopes will encourage some borrowers to select a capital repayment mortgage.

The previous maximum LTV was 75%.

A spokesperson for Abbey for Intermediaries said: “Following a review of our interest-only criteria, we have taken the decision to reduce the maximum LTV on our residential interest-only mortgages.

“For new applications with any amount taken on an interest-only basis, the maximum LTV for the overall loan will now be 50% LTV.

"This will encourage borrowers with less equity in their properties to choose a capital repayment mortgage, and ensure the capital is being paid off in full over the term of the mortgage.

“We believe this decision is a prudent one that best meets the needs of borrowers in today’s market conditions."

Stephen Smith, Legal & General's director of external and housing affairs, said the move shows lenders are in a position to pick and choose the borrowers they want to take on.

"In a competitive market, if there is demand for the type of lending which has been withdrawn, other suppliers will enter, at an appropriate price for the risk, and will take up the business. This may not be immediate, but it is likely to happen over time.

"We hope that other lenders will pause, think and examine the performance of their own interest-only lending portfolios before responding to this move.

"In the most recent MMR paper, the FSA has indicated that interest-only lending is still a valid strategy for informed consumers with a credible repayment strategy. We certainly support that position," said Smith.