RBS will now only offer interest-only mortgages on an advised basis.
Royal Bank of Scotland (RBS) has become the latest lender to tweak its interest-only mortgage lending criteria.
From this week, only those authorised to give financial advice will be able to complete an application for an interest-only mortgage. In practice, that means that you’ll be unable to get an interest-only mortgage direct, whether in branch or over the telephone. Instead, you’ll need to use a mortgage broker or independent financial adviser (IFA).
Earlier this year, RBS decided to only offer interest-only mortgages to borrowers earning over £50,000 a year.
Interest-only repayment plans
It’s an understandable move. Lenders are under the spotlight from the regulator when it comes to interest-only mortgages, to make sure they are only granted to borrowers who fully understand how they work and have plans in place on how to pay off the loan at the end of the term.
This is particularly important, as recent research by data firm Xit2 suggested there are £116 billion-worth of interest-only mortgages due to mature in the next eight years where the borrower has no repayment plan in place. It’s little wonder there have been suggestions that interest-only could become the next big mis-selling scandal.
Tightening criteria
2012 has seen a succession of lenders tighten up their interest-only mortgage lending.
[SPOTLIGHT]Just last month Yorkshire Building Society and Accord Mortgages made changes to their own criteria. With Yorkshire, interest-only borrowers who are planning to sell the home to repay the mortgage need to have at least a 50% deposit, while the property must be worth at least £250,000. The deposit requirement drops to 25% if they have a repayment vehicle already established.
With Accord, while borrowers can still use their pension pot to repay the mortgage, the outstanding loan can now only be up to 25% of the projected pension fund.
And back in February, Lloyds announced that it would no longer accept cash savings, including Cash ISAs, as a repayment vehicle for interest-only mortgages. Around the same time, Santander restricted the sale of its interest-only mortgages to borrowers with at least a 50% deposit or equity.
For more, check out Noose tightening around interest-only mortgages.
If you have an interest-only mortgage and you’re struggling to meet your repayments, read Your options if you're struggling to pay off your interest-only mortgage.
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Noose tightening around interest-only mortgages
Your options if you're struggling to pay off your interest-only mortgage