NatWest and Coventry were the latest lenders last week to join the growing ranks of lenders to pull out completely from interest-only lending.

From today both firms revealed they would no longer offer interest-only residential mortgage lending and only offer it for buy-to-let loans.

Existing borrowers with Coventry on interest-only will not be able to increase their borrowing on an interest-only basis but they will be able to port their existing mortgage.

Both firms blamed dwindling lending volumes for interest-only mortgages on their decision to pull the product ranges.

Coventry sales and marketing director Colin Franklin says: “Residential interest-only mortgages have declined to less than 2 per cent of all residential mortgage applications. We have therefore decided the time is right to leave this market.”

And RBS and NatWest head of home lending Moray McDonald said residential interest-only mortgage had declined to 4 per cent of of customers now applying on that basis.

He said: “We don’t rule out offering residential interest only mortgages to niche customer groups in the future but we would do that using specialist advisers rather than our broad base of branch and telephony advisers.”

The Co-operative Bank was the first to pull out completely from interest-only in May this year and then in October Nationwide pulled out of interest-only for new lending. Both brands again argued that their decision had been prompted by a fall in demand with Nationwide stating that it represented less than 3 per cent of the applications that it received.

But between February and May this year, Santander, ING Direct, Leeds Building Society and Coventry Building Society all cut their maximum LTVs from 75 per cent to 50 per cent, while Skipton Building Society cut its maximum LTV from 75 per cent to 60 per cent.

The FSA established as part of the final publication of the Mortgage Market Review that ultimate responsibility for repaying the capital at the end of an interest-only term rested with the borrower, not the lender.

The FSA will publish a thematic review on the issues facing existing interest-only borrowers in early 2013.

Emba Group sales and Marketing director Mike Fitzgerald says: “I think lenders have got to take a more sensible look at interest-only. Interest-only is a good option for the right person. This seems to be a knee jerk reaction to the MMR and other lenders’ reactions.”