Concern grows for interest-only as Coventry scraps it for first-timers

The future of interest-only mort-gages was called into question again last week, with Coventry Building Society dropping it for first-time buyers.

Coventry, the UK’s third largest society, will only offer interest-only to home owners and only up to 75% LTV. Any proportion of the loan higher than this must be on a repayment basis.

And it will no longer offer interest-only on loans over £500,000.The society says downsizing or the sale of a second property will no onger be considered acceptable repayment vehicles.

Aaron Strutt, product and communications director at Trinity Financial Group, says: “This policy switch by Coventry is one of the toughest yet.

It seems particularly unfair that all first-time buyers should be forced to take a repay-ment mortgage, no matter what the size of their deposit is.

“If other lenders think this is a good idea and follow Coventry’s lead the mortgage market is going to get even tougher.”

A spokeswoman for Coventry says it took the decision as a result of other lenders’ policies.

She says: “Other lenders have shifted their position so we have changed ours to stay in step.

“We have restricted interest-only lending for first-time buyers because as a responsible lender we want to encourage responsible borrowing and ensure that first-time buyers only take on repayments they can afford.”

Northern Rock recently changed its interest-only criteria and no longer accepts certain repayment vehicles. It has also reduced its maximum LTV from 85% to 75% for such deals.

And Lloyds Banking Group no longer offers customers an interest-only repayment method if they are borrowing more than £500,000.

In June the Financial Services Authority revealed that it is to crack down on interest-only mortgages and examine them in detail.

The FSA has approved a proposed merger between Coventry and Stroud & Swindon Building Society.