The bank says the move is about being a responsible lender and making sure first-time buyers can afford their homes.
The changes will apply to all deals across the Royal Bank of Scotland range.
London & Country says that a borrower with a £200,000 mortgage at 75% LTV with a rate of 3.59% would currently pay on an interest-only cost £598.33 a month. But on a 25-year repayment basis this shoots up to £1010.93 a month.
David Hollingworth, head of communications at London & Country, says RBS is shying away from first-time buyers using interest-only as a cheap mortgage.
He says: “It is stopping interest-only being used as a cheap option but it will also stop first-time buyers using interest-only as a flexible option in the early years.
Hollingworth says that if you have a repayment vehicle running alongside it then the cost implications will be minimal.
A spokesperson for NatWest Intermediary Solutions says: “As a responsible lender, it is prudent for first-time buyers to build up equity in their property by reducing their capital from day one, particularly in times of economic uncertainty.
“Repaying capital from the outset will help to protect first-time buyers from the possible threat of negative equity in the future. In turn, this will make it easier for first-time buyers to eventually move up the property ladder, as they will have a better chance of building up sufficient equity in their property to provide them with the level of deposit needed for their next house move.”
The move follows similar decisions by Coventry Building Society to ban interest-only for first-time buyers, Northern Rock to restrict it to 75% LTV and Lloyds Banking Group to ban it for mortgages over £500,000.