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Co-op exit is bad sign for interest-only sector

Brokers fear more lenders will pull out of interest-only lending after the Co-operative Bank announced it is pulling out of the market for residential mortgage customers.

Last week the Co-op said that from this week, residential mortgage customers can only take out mortgages on a capital and repayment basis.

The change will not affect existing interest-only customers, who can switch to any open product for the same amount of borrowing on an interest-only basis when they come to the end of their deal. They also have the option to port their existing interest-only mortgage.

The changes apply to mortgages offered through the Co-op’s lending subsidiary Britannia and residential mortgages through Platform, the intermediary mortgage arm of the Co-op, which will continue to offer an interest-only option on BTL mortgages.

Lentune Mortgage Consultancy director Stuart Gregory says: “Once one lender makes a move like this, others will surely follow, making the situation worse for those who already have interest-only mortgages as there is less choice to switch deals.”

Emba group sales and marketing director Mike Fitzgerald says: “It only takes one move like this for other lenders to sit up and think about how they are going to approach interest-only. I have a feeling we could see more lenders following this route over the coming weeks.”

In the past two months, ING Direct, Leek United Building Society, Leeds Building Society, Nationwide Building Society, Coventry Building Society and Newcastle Building Society have all cut their maximum lean to values for interest-only lending from 75 per cent to 50 per cent.

Skipton Building Society cut its maximum LTV from 75 per cent to 60 per cent and Principality Building Society restricted its interest-only lending to three products but kept its maximum LTV at 85 per cent.

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