by Mark Johnston
Nationwide ends interest only mortgages.
Recent data has shown that of the 11.2 million current mortgages in Britain, about 43 per cent of these are interest-only deals.
For a generation these particular deals have been a standard way for first time buyers and those with families to get on to the housing ladder.
These loans were commonplace during the housing boom as they allowed borrowers to stretch themselves and buy properties they could not afford, with the belief that rising prices would enable them to pay back the capital at the end of the mortgage term.
Banks and building societies have been cutting back on interest-only deals for a while ahead of a crackdown by the Financial Services Authority (FSA), the City regulator.
In March this year Nationwide decided to cut its maximum interest-only loan to value (LTV) from 75 per cent to 50 per cent.
Then in May 2012, the Co-operative building society became the first major mortgage lender to scrap interest-only deals, which are held by third of its mortgage customers.
Other lenders, including Santander, INGDirect, Leeds Building Society and Coventry Building Society all joined Nationwide by cutting their loan to values (LTV) to 50 per cent.
It seems that these moves come amid growing fears from lenders that these types of mortgages could be the next mis-selling scandal after many people took out super-size loans before the credit crunch that they had no realistic hope of repaying.
Jonathan Harris, director of mortgage broker Anderson Harris, said it seems that high street lenders were “running scared, falling over each other to rein back on the loan-to-values and maximum loan sizes they are prepared to advance”.
However, the Nationwide has now announced that from next week it will stop offering interest-only mortgage deals.
A spokesman for Nationwide said: “Interest only mortgages are only a tiny amount of new mortgages for Nationwide. We consider them to be a niche product”.they added “Our evidence shows that borrowers increasingly want the certainty that repayment mortgages can provide.”
Although, existing customers will not be able to increase their mortgage on an interest-only basis or remortgage to a different deal, but can move home, as long as they borrow no more money.
Chadney Bulgin mortgages partner Jonathan Clark says: “This unexpected alteration to Nationwide’s interest-only policy is a shock given its well-publicised appetite to lend at the moment. It is very concerning as other lenders may feel the need to follow its lead.”
Andrew Montlake, director of mortgage broker Coreco, said: ‘This is a massive step for Nationwide to take and it could well have a big effect on other lenders.”
David Hollingworth, from mortgage advisers London & Country, said: ‘Nationwide’s move is the final chapter for interest-only mortgages.
Also earlier this week, the Royal Bank of Scotland revealed it had decided to only offer interest-only mortgages on an advised basis.
In conclusion it appears that effectively ‘time has been called ‘ on interest only mortgages and these deals now look set to be a thing of the past.
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