£50,000 rule for RBS interest-only mortgage deal

 

New interest-only mortgages taken out by Royal Bank of Scotland
(RBS) and NatWest customers will be restricted to people earning at
least £50,000 under fresh rules announced today.

The new requirements will help deal with market volatility and are part of RBS and its sister brand NatWest showing "responsible" lending by ensuring the mortgage is affordable to the consumer, the Royal Bank of Scotland group said.

The announcement follows general concerns of an interest-only mortgage "ticking time bomb" across the market, with worries previously raised that some borrowers currently on interest-only deals with lenders may find themselves unable to remortgage.

The group said the new rules are "in line" with recent changes across its competitors and it will retain the current loan-to-value (LTV) mortgage lending rate of 75%. The criteria changes only apply to residential mortgages and not to existing interest-only mortgages.

The changes mean that interest-only mortgages will only be available to RBS/NatWest customers who have banked with them for three months prior to application and payed in more than £1,000 salary per month into their current account.

Interest-only mortgages will only be available to customers who earn a minimum of £50,000 gross basic salary a year, before any regular overtime or bonus income is taken into account.

When there are joint applications, the main applicant must earn at least £50,000 basic salary gross and it is not enough for both applicants to be earning at least this amount combined.

The Bank of England expects lenders to tighten their borrowing criteria this year. Lenders have recently made a wave of recent mortgage rise announcements, affecting more than a million borrowers in total, blaming higher funding costs and the weak economy.

The property price boom fuelled a surge in interest-only mortgages, peaking at a third of all mortgage sales in 2007.

Taking such mortgages out was a way for consumers to increase their borrowing capacity at a time when property prices were outpacing wage increases.

More recently, sales of such products have accounted for less than 20% of mortgage sales as the subdued property market means lenders can no longer be certain that consumers will be able to remortgage elsewhere before the end of the mortgage term.

Earlier this month, the Financial Services Authority (FSA) warned that some borrowers aged in their late 50s who are currently on interest-only deals face a "ticking time bomb" whereby they could be unable to remortgage.

An estimated £120 billion of interest-only mortgage loans generally which have already been taken out are due for repayment over the next 10 years, presenting a "significant challenge" for lenders and consumers, the FSA estimated in its Mortgage Market Review published last year.

Under the FSA's plans to tighten up on irresponsible lending generally, interest-only mortgages will only be offered in future where there is a credible plan to repay the capital, and borrowers cannot just rely on hopes that house prices will rise.

Martin Wheatley, managing director of the FSA's conduct business unit, told the House of Commons' Treasury select committee that regulation could not solve all the problems created over the last 20 years.

Mr Wheatley said: "There is a ticking time bomb that's been created over the last 20 years and what we're trying to do is to make sure that that ticking time bomb does not get any worse from here on in."

The FSA has said its calculations showed that some 1.5 million interest-only mortgages worth around £120 billion will be due for repayment in the next decade.

The Council of Mortgage Lenders (CML) has been working with its members to identify ways of helping interest-only borrowers without sufficient means to repay the capital by the end of the term.

PA

Life and Style
Living for the moment: Julianne Moore playing Alzheimer’s sufferer Alice
health
News
Jay Z
businessJay-Z's bid for Spotify rival could be blocked
News
The spider makes its break for freedom
VIDEO
Voices
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Sport
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle v United player ratings
Arts and Entertainment
books
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Graduate Application Support Analyst

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Reach Volunteering: External Finance Trustee Needed!

    Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

    Christine McCleave: FP&A Analyst

    £36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Day In a Page

    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
    Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

    What is it like to live with Alzheimer's?

    Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
    The Internet of Things: Meet the British salesman who gave real-world items a virtual life

    Setting in motion the Internet of Things

    British salesman Kevin Ashton gave real-world items a virtual life
    Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

    Election 2015: A dead heat between Mr Bean and Dick Dastardly!

    Lord Ashcroft reveals latest polling – and which character voters associate with each leader
    Audiences queue up for 'true stories told live' as cult competition The Moth goes global

    Cult competition The Moth goes global

    The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
    Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

    Pakistani women come out fighting

    Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
    Leonora Carrington transcended her stolid background to become an avant garde star

    Surreal deal: Leonora Carrington

    The artist transcended her stolid background to become an avant garde star
    LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

    Education: LGBT History Month

    Pupils have been discussing topics from Sappho to same-sex marriage
    11 best gel eyeliners

    Go bold this season: 11 best gel eyeliners

    Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
    Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

    Cricket World Cup runs riot to make the event more hit than miss...

    The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
    Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

    Katarina Johnson-Thompson: Ready to jump at first major title

    After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot