Coventry scraps interest-only for first-time buyers

Coventry Building Society has become the latest lender to make changes to its interest-only policy and will no longer allow interest-only for first-time buyers.

It is also restricting interest-only to loans with a maximum LTV of 75%. Any proportion of the loan higher than this must be on a repayment basis.

It will also no longer offer interest-only on loans over £500,000 and downsizing and the sale of a second property are no longer acceptable repayment  vehicles.

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

“It seems particularly unfair that all first-time buyers should be forced to take a repayment mortgage, no matter what the size of their deposit is. If other lenders think this policy change is a good idea and follow their lead, the mortgage market is going to get even tougher.”

A spokeswoman for the Coventry, says: “Other lenders have changed their position so we have also changed our position to keep in step with the market. We have restricted interest-only lending for first-time buyers as a responsible lender we want to encourage responsible borrowing and ensure that FTB’s only take on affordable repayments.”

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

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

In June the Financial Services Authority revealed it is to crackdown on interest-only mortgages and look into the area in greater detail this year.

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