Nationwide ends interest-only deals

Updated: 

Nationwide branchFiona Hanson/PA Wire/Press Association Images

Nationwide has become the latest mortgage lender to pull out of the interest-only market, saying it will no longer offer this type of deal from next week.

A spokeswoman for the building society said that interest-only mortgage lending has become a "niche area" and it will stop offering mortgages on this basis from next Thursday. Customers who are currently on an interest-only deal with Nationwide will be unaffected, she added.


However, these borrowers could struggle to find another similar deal as lenders have tightened up their lending on such mortgages, which allow borrowers to only pay off the capital when the mortgage term ends, enabling them to maximise their initial borrowing capacity.

Like many other lenders, Nationwide had already limited its interest-only lending to up to 50% of the property's value.

The Nationwide spokeswoman said that only 3% of its new mortgages are interest-only.

She said: "Even on our back book, we have got 20% of mortgages which are interest-only - around half the industry average. We assess people on a repayment basis anyway."

The Financial Services Authority recently warned an estimated 1.5 million such loans worth around £120 billion are due for repayment in the next decade. It wants to see interest-only mortgages offered in future only where there is a credible plan to repay the capital, and borrowers cannot just rely on hopes that house prices will rise.

Lenders generally have toughened their borrowing criteria in recent months, although an £80 billion funding for lending scheme launched in August to unclog the flow of credit has caused an increase in mortgage availability, a recent Bank of England report found.

Clare Francis, mortgage expert at MoneySupermarket.com, said: "Nationwide's decision could certainly sound the death knell for interest-only mortgages. It's a big decision for one of the country's largest lenders to pull out altogether and, if others follow suit, the days of interest-only mortgages may be numbered."

She said that while the "vast majority" of people nowadays opt for repayment mortgages, there is "nothing wrong" with an interest-only mortgage as long as borrowers know how they will repay the loan when the mortgage term ends.

© 2012 Press Association

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