NatWest and Royal Bank of Scotland will no longer offer new residential interest-only mortgages from Monday.
The lender says interest-only lending has declined to such a small proportion of its new business that it is almost entirely retiring this option from next week.
Buy-to-let mortgages will still be available on an interest-only basis and existing borrowers will not be affected by the change.
RBS and NatWest head of home lending Moray McDonald says: “Residential interest only mortgages have been a declining part of our mortgage lending, with only 4 per cent of customers now applying on that basis. As a fast growing UK mortgage lender we want to focus on the products most of our customers are asking for.
“We don’t rule out offering residential interest only mortgages to niche customer groups in the future but we would do that using specialist advisers rather than our broad base of branch and telephony advisers.”
RBS stopped offering interest-only mortgages on a non-advised basis in October.
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.