Nationwide will no longer lend on an interest-only basis for shared equity mortgages as part changes to its shared equity criteria.
The lender is also including 3% of the equity share loan as an outgoing in clients’ affordability calculations.
It says this change has been made to ensure borrowers can afford to repay the mortgage. Previously the equity loan was not included in the affordability calculation.
The equity loan, provided by a third party such as a housing association, must be interest-free for the first five years to be accepted by Nationwide’s shared equity scheme.
The building society says this change will have a minor impact on the amount of money it will lend.
In addition, Nationwide will no longer accept shared equity applications from non-EEA nationals without indefinite leave to remain in the UK.
A spokesman for Nationwide says: “All equity share loans will now need to be on a capital and repayment basis. Our previous policy allowed interest-only applications, although the numbers of such applicants was low.
“This prudent approach we are taking will help borrowers buy out the equity loan element in the future.”
She adds: “The change brings us back in line with the rest of the market and with our policy to cap interest-only lending at 75% LTV.”