Nationwide Building Society, the UK’s biggest building society has announced that it will only agree interest-only mortgages for borrowers with 50 per cent equity in their homes.
The Nationwide previously allowed borrowers with just 25 per cent equity in their properties to pay on an interest-only basis and avoid making capital repayments.
The change applies to residential customers and takes effect from tomorrow (March 21st). The Nationwide said it had made the decision so it could “manage application levels” and follows similar decisions from other lenders.
Last month the Halifax tightened asset terms by saying that it is changing some of the assets that can be used to pay off a mortgage. Both the Halifax and RBS increased the interest rate attached to standard variable rate (SVR) mortgages in a move affecting around one million homeowners.
Santander has also recently changed the rules on interest-only mortgages in a similar way.
The change also applies to other mortgage companies under the Nationwide umbrella including the Cheshire, Derbyshire and Dunfermline Building Societies.
Borrowers on a current deal are unaffected until their deal ends and can switch to a different Nationwide mortgage deal or move home without being penalized as long as they don’t borrow more money.
To borrow more without penalty customers would have to take out a repayment mortgage or ensure that their loan-to-value ratio (LTV) remained above 50 per cent.
Last week the Financial Services Authority (FSA) warned that a large number of people approaching retirement on interest-only mortgages would be unable to pay off their mortgages at the end of the term for a number of reasons.
Adrian Knott, director of independent mortgage broker, Adrian Knott Partnership said: "The Nationwide's decision is another hammer blow to borrowers and the broader property market.
"What this decision demonstrates above all is the herd mentality of the high street lenders.
"Why lenders can't assess applications on a case-by-case basis rather than take an axe to LTVs is beyond me.
Martyn Dyson, Nationwide's head of mortgages, 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.”
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