Existing customers are unaffected by the move but those who want to borrow more money will only be able to do so on a capital and interest basis. The change comes in today.
The building society says it will process interest-only applications it has received before today.
In a broker note, the building society says: “As you will be aware, there has been a general downward movement in the market place in the level of Interest Only borrowing allowed by lenders, with many already having withdrawn from the market. Our move is a reflection of this to ensure we are not out of line with the rest of the sector.”
Earlier this month, NatWest and Coventry Building Society became the latest lenders to join the growing ranks of lenders to pull out completely from interest-only lending.
The Co-operative Bank was the first to pull out completely from interest-only in May this year and was followed in October by Nationwide. 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.