|Banks move home owners off interest-only mortgages|
Home owners with interest-only mortgages are being made to pay higher monthly payments after being moved onto costly capital repayment deals amid fears of a double-dip in house prices.
Santander is one of several high street lenders which have introduced the new rules for borrowers with interest-only deals.
Halifax is also understood to applied changes.
Borrowers without sufficient equity in their homes are being moved onto repayment deals once their initial deal has come to an end.
Banks said the move was part of “prudent” lending during the economic downturn and are unable to rule out imposing a further squeeze on borrowers in the months ahead.
It comes amid concerns that the housing market is heading for a double dip as economists predicted that home owners could lose the equivalent of more than the average salary off the value of their homes.
Nationwide reported house prices dropping 0.9 per cent in August, following a 0.5 per cent drop the previous month.
Santander told The Daily Telegraph that customers with less than 25 per cent equity in their home would be moved onto a capital repayment basis.
It means that even if the rate they are currently paying does not rise, a borrower with a typical £150,000 would pay an extra £390 a month. This calculation is based on the borrower paying a mortgage rate of 3 per cent.
Melanie Bien, of mortgage brokers Private Finance, said: “For home owners with interest-only mortgages, a forced switch onto a repayment deal by their lender at the end of their fixed or discounted period would lead to a significant rise in their monthly payments. For those saddled with big mortgages, it may well be an unaffordable increase, making it difficult for them to make ends meet.
“Lenders are worried about a further downturn in prices and are introducing these changes to protect themselves, as well as borrowers. But hard-pressed homeowners may find it’s an extra cost too far.”
Interest-only mortgages are one way borrowers can reduce their monthly mortgage repayments - but those who took this type of mortgage several years ago may now be paying a heavy price.
This is because banks were tightening their lending criteria much more on interest-only deals amid fears of borrowers defaulting on their loans.
A spokesman for Santander said: “If a customer wishes to move, or 'port', their mortgage to a new property we will treat it as a new application. Santander currently only offers interest only mortgages to people with at least a 25 per cent deposit.
If someone doesn't have this and wants to remortgage with us or move their mortgage to a new property we will decline the application unless the customer switches to a capital and repayment mortgage. We do have a case by case exceptions process in place where this is not possible and we will consider extending interest only deals providing we are happy the customer will be able to repay the capital at the end of the loan. It is not in Santander's or our customer's interest for them to be unable to do so.”