Spanish banking giant Santander became the first major high street bank operating in the UK to demand a 50 per cent deposit from homeowners looking for an interest-only mortgage. This means that anyone applying for such a mortgage will need to put up 50 per cent equity in their property before their application is considered.

As well as those seeking to buy another house, existing interest-only mortgage-holders will also be affected, and if their current mortgage does not conform to these new stipulations, then they will need to transfer their loan to a repayment mortgage or make a large one-off payment to bring their debt down.

Commenting on the changes by Santander, London & Country mortgage broker David Hollingworth warned that other banks were now likely to follow suit.

He said: “This is a significant move, and we are likely to see other lenders tightening their criteria. This move will no doubt force others to review their policy.
“This won’t just hit the more reckless borrower, who doesn’t have any repayment plan and is simply banking on house price inflation will enable him to pay off this debt. It will also hit those who have taken a more informed decision and have a repayment plan in place.”

Other brokers tend to agree, warning that now other lenders are likely to follow Santander’s lead, it could lead to the end of interest-only mortgages for all but the most wealthy borrowers.

Such deals were highly popular before the credit crunch hit the markets in 2008, especially among first-time buyers seeking to get in at the bottom of the property ladder. Since the economic downturn, the majority of mortgage lenders only allow interest-only loans with buyers borrowing up to 75 per cent of the property’s value.

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