The long slow death of the interest-only mortgage continues. It suffered another twist of the knife today, as Nationwide reduced the maximum percentage it is prepared to lend on an interest-only mortgage, from 75% to 50%.
And the experts say this won't be the last piece of bad news for interest-only borrowers.
ReductionsThis is the second time Nationwide's maximum loan-to-value (LTV) has been cut for interest-only borrowers - after it dropped from 85% to 75% last April. It also follows hot on the heels of a raft of lenders tightening their criteria for interest-only mortgages. Nationwide follows where Woolwich, Lloyds and Santander lead.
Nationwide said it was responding to moves by other lenders, which sounds like a lame excuse, but Ray Boulger, senior technical manager with mortgage adviser Charcol, said there is good reasoning behind it.
He explains that if other lenders slash their LTV, then anyone looking for a mortgage with a high LTV will come to you - which will mean you suddenly have an unbalanced mortgage book. In order to rebalance your portfolio, you need to make similar changes.
Martyn Dyson, head of mortgages at Nationwide, said: "A number of major lenders have recently restricted their criteria for interest-only mortgages, and Nationwide needs to be able to manage application levels in a prudent and sustainable manner. The group is therefore amending its policy to a maximum of 50% LTV."
Remortgage hellIt means that those looking for larger percentages could find it next to impossible to remortgage on an interest-only basis, unless their current lender offers a mortgage transfer. Boulger points out: "Even when a lender says they will offer a larger LTV, often they have such onerous criteria in place that most people won't qualify."
And he doesn't see the picture getting any brighter for these borrowers any time soon. He says: "This is one of the consequences of a lack of liquidity in the market, and I don't see that changing until there is a resolution of the Eurozone crisis, which will take years."