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Newcastle pulls out of interest-only lending

Newcastle Building Society has pulled out of interest-only lending for new borrowers.

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movement in the market place in the level of Interest Only borrowing allowed by lenders, with many already having withdrawn from the market.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.

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Comments
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  • Phil 20th December 2012 at 10:04 am

    GHU – love the way you slate brokers, it makes me laugh.

    No doubt when you were approving all those interest only loans in the past you were constantly telling your board of directors that their lending policy was totally wrong.

    No? – I didn’t think so

  • GHU 18th December 2012 at 9:55 am

    These comments always amaze me to the level where I feel that I have to respond. So lets’ deal with the comments:

    1. ‘Clients have no remortgage option open to them’:- MCOB requires all lending to be ‘responsible’ and when the original loan was agreed this should have been the principle behind the loan. In simple terms affordability should have allowed for a capital repayment vehicle so why would an interest only borrower be anymore disadvantaged when it comes to a re-mortgage – unless of course the loan was badly sold.
    2. ‘Another lender restricting choice’:- this is not a restriction. All lending is based on capital and repayment and interest only is, and was always, a concession not a right. The interest only conditions on the Offer usually offers a clear warning
    3. ‘Regulation and Social engineering by fear’:- may I suggest that this applies to those brokers who sold interest only without reinforcing the need for a capital repayment vehicle.
    4. ‘The shoddy way lenders have behaved over interest only’:- brokers in glass houses shouldn’t throw stones.

    Let’s be brutally honest about this. Interest only was sold as a cheap alternative and because it was comparable to renting. Borrowers haven’t worried about repaying the capital because that day is 25 years away and it will take care of itself!! Lenders are withdrawing from Interest Only for two reasons:
    • Capital and repayment is more profitable for a lender. Work the numbers out and you will see why
    • Everyone is scared witless of that IO case that is going to be proven to have been mis-sold and believe me there will be that really dreadful case that will go in favour of the borrower. Just look at the way the endowment issue went and I can actually provide an argument that shows that endowment wasn’t half as bad as the press (who so thoroughly supported endowment in the early ‘80s) made out. One case proven in favour of the borrower and watch the avalanche of cases that will follow.

    So just realise that Interest Only was rarely ever a product in its own right and was just a concession and also consider that the bulk of IO cases were introduced

  • The Cynical Broker 17th December 2012 at 10:44 am

    Interesting to read their comment: “Our move is a reflection of this to ensure we are not out of line with the rest of the sector.”

    Out of the lenders we regularly do business with, only Coventry, Nationwide and Platform have withdrawn from Interest only completely, so I’d have to say they’re talking rubbish !

    The shoddy (yet not surprising) way lenders have behaved over interest only, is just another reason to get the best 5 Year Fixed you can, and batten down the hatches!

  • TP 14th December 2012 at 6:37 pm

    Regulation and social emgineering by fear, instead of mandate.

  • Pissed Off IFA 14th December 2012 at 4:10 pm

    Typical of another lender restricting choice. It is no wonder that landlords are making a fortune. I can maybe understand restricting interest only to 70/80% LTV but to withdraw it altogether. The lenders were happy to make a fortune out of interest only mortgages at one time and now they do not want to help hard pressed borrowers.

  • Phil 14th December 2012 at 3:53 pm

    At least they didn’t roll out the old “it’s only a small proportion of our business” line. When everyone says the market is stabalizing they are not taking into account what will happen when rates rise and clients have no remortgage option available to them. Carnage will follow at some point