Santander reduces interest-only LTV to 50%

by Aaron Strutt

Feb 13 2012

Santander and Abbey for Intermediaries have reduced their maximum loan-to-value for interest-only mortgages from 75% to 50%.

Under the bank's new criteria, individuals will be able to borrow only a maximum of 50% of the value of their property on an interest-only basis. Anyone borrowing above this loan-to-value will have to take a full capital-repayment mortgage.

Aaron Strutt, a broker at Trinity Financial, says: “Santander's policy change is one of the toughest yet and they have gone much further than the handful of lenders that make first-time buyers take their mortgages on a full capital repayment basis.

“I have spoken to some of the bigger lenders and they are surprised at Santander's new stance, especially as they have always been happy to lend on interest-only. They don't expect to follow Santander's lead, but they can't rule it out.”

Banks and building societies have tightened their interest-only lending criteria after the Financial Services Authority expressed concerns as part of its mortgage market review.

According to the FSA, approximately 75% of borrowers who took out an interest-only mortgage in 2007 had declared no repayment vehicle.

February 10, 2012