Brokers have warned that private banks are becoming more cautious about granting interest-only mortgages on high loan-to-value (LTV) ratios, as concerns grow over falling housing prices.
Some lenders including Barclays Wealth and Coutts had been willing to lend as much as 80 percent of the value of a property on an interest-only basis. However, mortgage brokers have discovered that these lenders are increasingly limiting the interest-only portion of any home loan to 70 percent. They have also found that lenders are asserting that the portion of the loan beyond that amount be arranged on a capital and interest repayment basis.
“Of those happy to lend at higher loan-to-values, more and more often we are finding that they are restricting the interest-only portion to 70 to 75 percent loan-to-value,” said Nigel Bedford of Largemortgageloans.com.
Among the reasons why private banks are now more hesitant to lend high loan-to-values on interest-only include the forecasts of declining prices over the next year and the stricter capital adequacy requirements of the new Basel regulations, said Mr Bedford.
Simon Gammon of Knight Frank Finance said private banks have also begun to take a more active interest in the LTV ratios in their mortgage portfolios.
“If they are concerned that the value of the property has fallen, they will phone clients up and say that they have to decrease their borrowing,” said Mr Gammon. “We’re telling clients to allocate some money for that just in case.”