Interest-only mortgages: the banks that will still lend

%VIRTUAL-SkimlinksPromo%Interest-only mortgages are dying out but several lenders still provide them, with strict conditions.
The interest-only mortgage market has regularly hit the headlines of late as a number of major providers have tightened lending conditions or pulled out of the market altogether.

Yorkshire Building Society was the last lender to withdraw from the market back in March because of the general downward trend in these types of mortgages.

HSBC also changed the way it provides interest-only mortgages, restricting them only to Premier banking customers.

This followed on from Coventry Building Society, NatWest and RBS, Nationwide and the Co-operative which have all announced withdrawals from interest-only lending on residential deals.

But there are some providers who still supply these mortgages, albeit with extremely strict lending criteria.

Here is a list of the major providers still in the market.

Lenders in the interest-only market



Nottingham Building Society




Lloyds Banking Group (including Halifax, Lloyds Bank, Scottish Widow, Bank of Scotland)




Barclays (Woolwich)


HSBC (Premier customers only)


Clydesdale/Yorkshire Bank (through a Broker to Private Banking customers)


Virgin Money (including Northern Rock (must earn £100,00 or more, loan must be over £500,000))


Furness Building Society


Cambridge Building Society (lending only in Cambridgeshire, Norfolk, Suffolk, Essex, Hertfordshire, Buckinghamshire and Northamptonshire)


Bank of Ireland


Post Office


Skipton Building Society


Marsden BS (through a broker)


Santander (through a broker)


West Bromwich Building Society (through a broker)


Leeds Building Society


Progressive (within Northern Ireland)


Teachers Building Society (through a broker)


Monmouthshire BS


Lending criteria

Virgin Money is the latest bank to tighten up its lending criteria. From 9th December the provider will only lend to high-net-worth individuals that are earning £100,000 or more. It will also replace its current minimum loan size of £300,000 with a minimum of £500,000 and not lend to first-time buyers.

In order to be approved for an interest-only mortgage, most lenders now require a deposit of around 40% and many aren't available to first-time buyers.

This means if the loan you need is £200,000 then you'll need to stump up £80,000 in order to qualify.

On top of this borrowers will also have to prove they're able to repay a loan. Although each lender has its own criteria, typical methods of repayment include: an endowment, a cash lump sum from a personal or occupational pension plan, an equity ISA or the sale of an investment property or a second home. These generally need to have been in place for at least six months at the time the mortgage is applied for.

However some won't accept cash savings, like ISAs, or a sale of a business or mortgaged property as a repayment model. Borrowers may also be required to earn a certain amount.
If you're planning on paying back the loan through downsizing or selling a property, many lenders won't accept this. Even if they do the deposit is likely to rise to 50%.

See the latest mortgage rates and get expert advice

Interest-only mortgages

Lenders have been clamping down on these mortgages for some time and it's likely more will follow suit in pulling out of this market.

Interest-only mortgages were created to let borrowers pay off their capital debt in a lump sum when the mortgage term was over. Your monthly repayments would only be to cover the interest on the loan, not the actual loan itself.

Problems occurred with interest-only mortgages because before the credit crunch many borrowers were allowed to take out these products without having a plan for paying back the loan.

And now the Financial Conduct Authority, the new financial regulator, has ordered lenders to communicate with interest-only borrowers to ensure they are aware of how likely they are to be able to pay off the mortgage at the end of the term. Read Mortgage lenders to contact interest-only borrowers to address shortfalls.

What if you're on an interest only mortgage?

The lenders who have already announced a removal from this market have said nothing will change for existing customers. However, it does further reduce choice if they want to remortgage.

If you are having difficulties, read Your options if you're struggling to pay off your interest-only mortgage.

Can you pay less for your mortgage? See the latest rates

This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker, before acting on anything contained in this article.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

The people who affect house prices
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Interest-only mortgages: the banks that will still lend

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.


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