Mortgage borrowers will have to provide more proof that they can meet their repayments before a loan is approved.
Approvals for mortgages will only be given to consumers who have evidence that they can pay back the borrowed sum.
Halifax will now require interest-only mortgage applicants to provide proof that they can repay their home loan before an offer is made.
Until April 6 borrowers did not have to provide documentary evidence before securing a mortgage – it was enough to state that they had a means of paying back the loan without proving it.
Banks are tightening their lending criteria to prevent providing loans to borrowers who may default on their payments amidst rising job insecurity and inflation.
A Halifax spokesman said the changes have been “designed to reflect the additional risks and responsibilities associated with interest only lending”.
Melanie Bien, mortgage brokers Private Finance, said: “High-street lenders have been tightening their interest-only criteria since the downturn because they regard these loans as more risky than repayment deals. If this continues, interest-only mortgages could vanish, or become so limited in scope that they are available to only a handful of borrowers”.
She continued: “Interest-only loans aren’t inherently bad. What about first-time buyers who don’t have a repayment vehicle but are due an inheritance? Or someone with a modest income but sizeable and regular bonuses which can comfortably be used to clear the capital? ‘One size fits all’ does not work when it comes to mortgages. For some borrowers, not all, interest only is the right choice”.
