Changes to Interest Only Lending Criteria for High Value Mortgage Borrowers

Changes to Interest Only Lending Criteria for High Value Mortgage Borrowers

Chris Lloyd

Over recent months, many lenders have changed their ‘interest only’ lending criteria to make it tougher for new borrowers to get an interest only loan. At the same time, many banks have understood that high net worth clients need access to this type of product because of the difference in the way their income and assets are structured and because of the more sophisticated nature of a borrower’s requirements.

Now, a leading lender has changed its criteria in order to help high value mortgage customers arrange their home loan on an interest only basis. Barclays has replaced its minimum interest only loan size with a minimum income requirement to determine if a high net worth borrower is eligible for an interest only mortgage.

Barclays to continue to offer interest-only loans to high-value mortgage borrowers

In 2012, many lenders significantly tightened their interest-only criteria. Many limited their maximum lending to around 50 per cent while others including Nationwide and the Co-Operative Bank withdrew from this type of lending altogether.

Now, Barclays has announced that from 4 June, sole applicants will have to have a gross income of at least £75,000 to qualify for an interest-only mortgage with the lender. Joint applicants will need either one party to prove a gross income in excess of £75,000 or, if neither person’s income meets this requirement, then the joint gross income must be at least £100,000.

Money Marketing reports that the lender has also made changes to its criteria around acceptable repayment vehicles. If you intend to use the sale of the property to clear your high-value mortgage, there will be a minimum equity requirement of £300,000. This replaces the minimum loan size of £300,000. The maximum loan to value of 50 per cent still applies.

If you wish to use a repayment vehicle that does not include selling the mortgaged property, the maximum loan to value remains at 75 per cent. However, Barclays has removed the minimum loan size of £300,000. The bank accepts endowments, stocks and shares ISAs and unit trust or investment trusts as repayment vehicles.

What do changes to interest only lending criteria mean?

“This move is a clear sign that lenders understand that high-value mortgage borrowers have specific needs when it comes to structuring their mortgage,” said Islay Robinson, CEO of London mortgage adviser Enness Private Clients. “I welcome Barclays move to continue to offer interest only lending to high value mortgage clients as these borrowers often have a range of assets and investments in place to repay their debt. It’s a common-sense approach that I’d like to see other lenders follow.”

A Barclays spokeswoman said: “We remain committed to the mortgage market and interest-only mortgages. This change is not about restricting lending, it is about ensuring that customers for whom interest-only is appropriate have the flexibility they need, ensuring those customers that want to borrow less than £300,000 on an interest-only basis are able to do so.

“We have already said that our focus is on the more affluent customer for interest-only lending and this change reflects this.”

For more information of different banks lending criteria and how this can affect your mortgage, feel free to contact us for a personal consultation or take a look at our difference between banks guide below.