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NatWest axes interest-only for FTBs

NatWest Intermediary Solutions is stopping interest-only for first-time buyers.

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.

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  • Anon 2nd December 2010 at 10:44 am

    I’m never sure the Interest Only drives higher house price argument stacks up…the majority of lenders now use an affordability model, the vast majority of which assess the affordability on a capital and interest basis regardless of whether the customer is taking out C&I or IO-as will no doubt be mandated by the MMR. Prior to this income multiples were used where the borrowing was worked out from the applicants spare income-again IO should not have really made a difference here.

  • Sandra McWhirter 1st December 2010 at 11:30 pm

    Natwest is definately not subprime! But Gavin has a point.
    Interest only mortgages for FTBs has been used to allow them to over borrow in many instances and this has caused the market to rise and therefore make more FTB borrow more to afford their first house! Its a crazy situation that cannot be recitfied without lenders taking this approach.
    Totally agree with A Has Been what happened to you must have a repayment vehicle in place?
    This mess must be sorted!

  • Anonymous 1st December 2010 at 10:08 am

    Why does it have to be ‘all or none’? Where is the creativity gone e.g. having designated and common sense splits such as 90% Repayment 10% I/O, 80/20 and 70/30 say. Surely this will cater better for individual circumstances than an all or none scenario?

  • Luke Atkinson 1st December 2010 at 10:06 am

    I would hardly describe Natwest as Subprime.

  • Danny Lovey 1st December 2010 at 10:01 am

    Gavin clearly does not understand the market when he refers to NatWest ending this – subprime rubbish

  • Danny Lovey 1st December 2010 at 9:31 am

    Another capitulation by a lender to a draft document from the FSA

  • Gavin 1st December 2010 at 8:24 am

    This is good news. Interest only mortgages for FTBs has just been used to allow them to over borrow fuelling the housing bubble further. This puts them and the lender at greater risk.

    Good to see Natwest ending this subprime rubbish.

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  • Richard Whitaker 30th November 2010 at 10:26 pm

    Well now it is confirmed that the banks do not subscribe to treating customers fairly!

  • A Has Been 30th November 2010 at 8:56 pm

    Many years ago you HAD to have a repayment vehicle or a repayment mortgage. Slack lending and the credit boom let to a housing bubble. People need interest only mortgages because they can’t afford their mortgage!! Why? shock horror…house prices are too high…and EVERYONE is trying to keep it that way. Can only defy gravity for so long people!!

  • Karen Hayes 30th November 2010 at 6:05 pm

    Responsible lender – quite possibly the two most overused words by lending institutions in the last 12 months. So fed up with hearing it – please change the record!

  • KP 30th November 2010 at 5:53 pm

    FTB should all have the opportunity to go Interest Only for the first couple of years, so they get on the ladder and get used to all the outgoings. Then switch to a Repayment basis or show they have a repayment vehicle in place to suffice. Its no different to renting other than they have control and dont have to sign a contract every 6 months or move if landlord increases rents

  • Lee Chester 30th November 2010 at 5:24 pm

    This will really drive activity in the housing market, well done RBS.

    This another example of a state owned bank not repaying its debt to the tax payer by making mortgages more attractive for FTBs.

    Give it 12 months and interest only will be a thing of the past.