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HSBC and Yorkshire pull out of interest-only residential mortgages
Lenders latest to withdraw from interest-only market ahead of new rules forcing more stringent checks on borrowers
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| From 25 March new borrowers won't be able to take out an interest-only mortgage from HSBC or Yorkshire unless they have a Premier account or want buy-to-let. Photograph: Stefan Wermuth/Reuters |
HSBC and Yorkshire building society have become the latest lenders to stop offering interest-only mortgages
to new customers, ahead of changes in the rules that will force lenders
to make more stringent affordability checks on borrowers applying for
the loans.
The move out of the loans, which allow borrowers to raise a mortgage and only pay off the interest each month, leaving the original debt to be cleared at the end of the term, affects residential purchases but not buy-to-let mortgages.
From 25 March new borrowers will not be able to arrange their loans on an interest-only basis at any of Yorkshire building society's brands, which include Accord and Chelsea building society, or through HSBC, unless they have a Premier account with the bank. To qualify for that account, customers need to earn at least £100,000 a year or invest at least £50,000 with HSBC.
HSBC said it was making its changes ahead of new rules coming into force in April 2014, which look set to insist lenders thoroughly check borrowers to ensure they have a credible repayment strategy in place from the outset.
The bank said most customers using interest-only homes loans earned enough to qualify for a Premier account. The household income on interest-only mortgage applications is around £130,000, double that on capital repayment loans.
"HSBC's interest-only mortgages are provided to borrowers who can afford a monthly payment including capital, but value the flexibility of an interest-only product," the bank said in a statement.
"Existing customers who have an interest-only mortgage will retain their interest-only terms on existing borrowing, but will be subject to the new policy changes when applying for new or additional money."
In an email to brokers, Yorkshire building society said: "We regularly review our mortgage proposition and the interest-only market has reduced considerably in recent months."
The lender will continue to offer buy-to-let mortgages on an interest-only basis through its broker Accord Mortgages. Existing customers with residential interest-only mortgages will be able to move the loan to a new property, but any extra borrowing will need to be taken on a repayment basis.
All residential applications will need to be submitted online by 8pm on 24 March and the application fee paid straight after.
Andrew Montlake of mortgage broker Coreco described the withdrawal of HSBC and Yorkshire from the mainstream interest-only market as "a worrying move".
"Many lenders have worked hard to come up with some sensible interest-only policy changes, and blanket bans from large lenders only serve to send jitters through the market once more," he said.
"Whether this is a prelude to a full-scale withdrawal of interest-only to all but the high net worth through private banks or very niche lenders remains to be seen, and much will no doubt be decided by the results of the FSA's review into interest-only whenever they are published."
Other lenders, including NatWest and Nationwide building society, have already withdrawn from the market, despite the regulator's decision not to ban the loans.
When the housing market was booming many borrowers took up interest-only deals to maximise the amount they could borrow and limit their monthly repayments, but some had no plans in place to repay the loan and expected to be able to use profits from their property to clear the debt.
Recently the credit rating agency Moody warned that three-quarters of borrowers over 60 had interest-only mortgages and that some could be faced with making repayments until they die.
The move out of the loans, which allow borrowers to raise a mortgage and only pay off the interest each month, leaving the original debt to be cleared at the end of the term, affects residential purchases but not buy-to-let mortgages.
From 25 March new borrowers will not be able to arrange their loans on an interest-only basis at any of Yorkshire building society's brands, which include Accord and Chelsea building society, or through HSBC, unless they have a Premier account with the bank. To qualify for that account, customers need to earn at least £100,000 a year or invest at least £50,000 with HSBC.
HSBC said it was making its changes ahead of new rules coming into force in April 2014, which look set to insist lenders thoroughly check borrowers to ensure they have a credible repayment strategy in place from the outset.
The bank said most customers using interest-only homes loans earned enough to qualify for a Premier account. The household income on interest-only mortgage applications is around £130,000, double that on capital repayment loans.
"HSBC's interest-only mortgages are provided to borrowers who can afford a monthly payment including capital, but value the flexibility of an interest-only product," the bank said in a statement.
"Existing customers who have an interest-only mortgage will retain their interest-only terms on existing borrowing, but will be subject to the new policy changes when applying for new or additional money."
In an email to brokers, Yorkshire building society said: "We regularly review our mortgage proposition and the interest-only market has reduced considerably in recent months."
The lender will continue to offer buy-to-let mortgages on an interest-only basis through its broker Accord Mortgages. Existing customers with residential interest-only mortgages will be able to move the loan to a new property, but any extra borrowing will need to be taken on a repayment basis.
All residential applications will need to be submitted online by 8pm on 24 March and the application fee paid straight after.
Andrew Montlake of mortgage broker Coreco described the withdrawal of HSBC and Yorkshire from the mainstream interest-only market as "a worrying move".
"Many lenders have worked hard to come up with some sensible interest-only policy changes, and blanket bans from large lenders only serve to send jitters through the market once more," he said.
"Whether this is a prelude to a full-scale withdrawal of interest-only to all but the high net worth through private banks or very niche lenders remains to be seen, and much will no doubt be decided by the results of the FSA's review into interest-only whenever they are published."
Other lenders, including NatWest and Nationwide building society, have already withdrawn from the market, despite the regulator's decision not to ban the loans.
When the housing market was booming many borrowers took up interest-only deals to maximise the amount they could borrow and limit their monthly repayments, but some had no plans in place to repay the loan and expected to be able to use profits from their property to clear the debt.
Recently the credit rating agency Moody warned that three-quarters of borrowers over 60 had interest-only mortgages and that some could be faced with making repayments until they die.
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