Santander sounds death knell for interest-only mortgages
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Thursday 09 February 2012
The UK's second-biggest mortgage lender has doubled the deposit for an interest-only loan.
Spanish-owned Santander has increased the deposit an interest-only borrower must find from 25 per cent of the value of a property to 50 per cent.
The move effectively sounds the death-knell for interest-only mortgages which, just five years ago, accounted for 20 per cent of all first-time buyer deals. Last year, the proportion fell to just 3 per cent as the City regulator – the Financial Services Authority – warned of the risks attached and lenders cut back on granting the loans.
David Hollingworth, associate director at London & Country Mortgages, said: "Such a radical shift by a major lender will be seen by many as another nail in the coffin of interest only."
The move will encourage rival lenders to follow, experts said, which could hit hopes of a housing market recovery.
Mark Harris, chief executive of broker SPF Private Clients, said: "Santander's move could set a precedent, with other lenders following suit.
"But if interest-only becomes beyond the reach of all but the wealthiest of borrowers, then it will hamper the housing market recovery, as there will be less choice for borrowers."
Five years ago it was still possible to get 100 per cent interest-only mortgages. However, anyone who took one out then is now likely to be facing the misery of negative equity – owing more than the property is worth.
Doubling the deposit could leave people unable to get a new deal.
David Black, analyst at Defaqto, said: "Only 29 per cent of mortgages will now permit an interest-only loan and most demand a 25 per cent deposit. The move to a 50 per cent deposit could lead to a significant problem for many interest-only borrowers."
73,000 Number of first-time buyers who took out interest-only mortgages in 2007.
5,300 Number of first-time buyers who took out interest-only mortgages in 2011.
- 1 Moscow voted the world's unfriendliest city
- 2 The excuses your boss is most likely to believe when you call in sick
- 3 I'm pansexual – here are the five biggest misconceptions about my sexuality
- 4 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches, it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don’t change Europe’s attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...
Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...