Nationwide Building Society has decided to scrap interest-only mortgages for new borrowers.
The change will take effect on 11 October. Brokers can reserve products on an interest-only basis until 5pm on 10 October.
The decision does not affect existing borrowers, who are free to port their interest-only mortgage if they move home. However, existing borrowers will not be allowed to increase their borrowing on an interest-only basis.
A Nationwide spokesman says: “We have decided that interest-only has become a niche product. We get very few applications on an interest-only basis – less than 3 per cent – as borrowers want the certainty of a capital and interest mortgage. That is why we have decided to stop offering interest-only mortgages to new borrowers.”
Chadney Bulgin mortgages partner Jonathan Clark says: “This unexpected alteration to Nationwide’s interest-only policy is a shock given its well-publicised appetite to lend at the moment. It is very concerning as other lenders may feel the need to follow its lead.”
In March, Nationwide cut its maximum interest-only LTV from 75 per cent to 50 per cent. A number of other lenders, including Santander, ING Direct, Leeds Building Society and Coventry Building Society have all cut their maximum LTVs from 75 per cent to 50 per cent, while Skipton Building Society has cut its maximum LTV from 75 per cent to 60 per cent.
The Co-operative Bank pulled out of interest-only lending altogether in May.
Earlier this week, Money Marketing revealed Royal Bank of Scotland has decided to only offer interest-only mortgages on an advised basis.