Nationwide will increase the minimum deposit on its new residential interest-only mortgages from 25 per cent to 50 per cent of the property’s value from tomorrow, the building society has announced.
The society said that the change is in response to moves by other lenders. Last month, Santander, the second-biggest mortgage lender in the UK, also increased the deposit required for new interest-only loans to 50 per cent
Martyn Dyson of 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 per cent loan-to-value [LTV].”
Nationwide previously reduced it’s maximum LTV for interest-only from 85 per cent to 75 per cent in April 2011.
Many other lenders have also significantly tightened their criteria on interest-only lending. For example, NatWest, which is part of Royal Bank of Scotland, and Skipton Building Society will not give interest-only mortgages to first-time buyers, while Woolwich, which is owned by Barclays, has very strict affordability requirements.
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Interest-only mortgages, where monthly repayments cover the interest but the capital does not have to be repaid until the end of the deal, were popular in the last property boom. An estimated 1.5 million of the loans worth around £120 billion are due for repayment over the next 10 years and many people are feared to have no repayment strategy.
Nevertheless, mortgage brokers today criticised Nationwide’s move. Mark Harris, of SPF Private Clients, the mortgage broker, said: “It is a shame for borrowers that Nationwide has introduced these restrictions but no real surprise. It’s like a pack of cards; one lender folds and the others inevitably follow. Since Santander tightened its interest-only policy, borrowers requiring such deals have flocked to Nationwide and it is having to tighten its criteria in order to cope.
“If only all lenders had stood firm and continued to offer interest only on their old terms, this option would still be widely available to borrowers. But once one acts, the others follow.”
Adrian Knott, of Adrian Knott Partnership, the mortgage broker, said: “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. For many of my clients — those with a history of bonuses or high incomes — interest-only loans are the most appropriate product, but LTV revisions like this are leaving them high and dry.”