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Over recent months, many lenders have stopped interest-only lending. With concerns growing that millions of homeowners with this type of mortgage do not have a repayment vehicle in place, lenders have been increasingly reluctant to lend on an interest only basis.
Now, a major lender has further restricted its interest only lending criteria. Virgin Money is tightening its lending criteria which will affect all borrowers except high value mortgage customers. Indeed, high net worth mortgage borrowers are one of the very few groups who retain access to this type of mortgage lending, as we see next.
Money Marketing reports that from December Virgin Money is restricting its interest only products to customers with a minimum total income of £100,000 and a minimum property value of £500,000. The minimum property value replaces the minimum loan size that it previously had of £300,000 for interest-only loans.
The lender says that it believes there is a place for interest only lending but only for more experienced customers who can demonstrate confidence in repaying their loan at the end of its term through ‘a clear and evidenced repayment plan’.
This means that Virgin Money will no longer offer interest only mortgages to first time buyers. Neither will the bank accept the sale of a customer’s primary residence or the use of cash ISAs as a repayment vehicle.
Other suitable repayment vehicles will continue to be accepted, subject to the usual criteria, including; investment plans, personal pension plans, endowment policies, sale of a property other than primary residence and a share portfolio.
Virgin Money director of financial services Anthony Mooney says: “We are making these changes in response to feedback from our intermediary partners, and given our experience that the vast majority of interest-only customers have higher incomes and property values.
”We remain of the view that interest-only remains an important option for more experienced borrowers who have a clear and demonstrable repayment plan and our revised policy reflects that.”
Islay Robinson, CEO of London mortgage broker and large mortgage specialist Enness Private Clients, said: “Over recent months most lenders have withdrawn interest only lending options to everyone except high net worth mortgage clients. However, borrowers with an income over £100,000 or looking to borrow six and seven figure mortgages will often retain the ability to take an interest only deal as they are considered more financially sophisticated clients.
“For example, Barclays took a similar move this summer and withdrew interest only lending to all borrowers except single applicants earning £75,000 and joint applicants earning over £100,000. This proves that there are still interest only options available if you’re looking for a large mortgage.
“If you want to look into interest only lending there are two factors to consider. Firstly, you will have to satisfy a lender’s basic criteria in terms of your income and the ‘loan to value’ that you want.
“Secondly, you will have to demonstrate that you have a repayment plan in place – whether that is from other property, investments or other assets. If you can do this then there are plenty of banks keen to lend to agree interest only loans for high value mortgage clients,” he added.