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Coventry BS to pull out of interest-only for new lending

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Coventry Building Society will no longer offer interest-only residential mortgages for new lending.

From 3 December, the lender will only offer interest-only mortgages for buy-to-let loans.

Existing borrowers on interest-only will not be able to increase their borrowing on an interest-only basis but they will be able to port their existing mortgage.

Coventry sales and marketing director Colin Franklin says: “Residential interest-only mortgages have declined to less than 2 per cent of all residential mortgage applications. We have therefore decided the time is right to leave this market.”

This week NatWest and Royal Bank of Scotland announced they were pulling out of the interest-only market for new lending.

The FSA established as part of the final publication of the Mortgage Market Review that ultimate responsibility for repaying the capital at the end of an interest-only term rested with the borrower, not the lender.

The FSA will publish a thematic review on the issues facing existing interest-only borrowers in early 2013.

Nationwide revealed it was pulling out of interest-only in October this year – it also took the line that interest-only has become a niche product, representing less than 3 per cent of the applications that it received.

But Nationwide spokesman Steve Blore also revealed that changes to the way lenders assess whether a borrower qualifies for an interest-only loan under the MMR also made it unattractive.

He says: “We could see there could potentially be an issue if there was a burden on the lender to check that repayment vehicles were suitable as we would in effect have to create a team to do it.”

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