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Nationwide pulls out of interest-only for new lending

Nationwide Building Society has decided to stop offering interest-only mortgages to new borrowers.

The decision does not affect existing borrowers, who are free to port their existing interest-only mortgage if they move home.

However, existing borrowers will not be allowed to increase their borrowing on an interest-only basis.

The changes will take effect from 11 October. Brokers can reserve products on an interest-only basis up to 5pm on 10 October.

A spokesman says: “We have decided that interest-only has become a niche product. We get few applications on an interest-only basis – less than 3 per cent – as borrowers want to certainty of a capital and interest mortgage.

“That is why we have decided to stop offering interest-only mortgages to new borrowers.”

In March, Nationwide cut its maximum LTV from 75 per cent to 50 per cent.

A number of other lenders, including Santander, ING Direct, Leeds Building Society, Nationwide Building Society and Coventry Building Society have all cut their maximum LTVs from 75 per cent to 50 per cent for interest-only lending while Skipton Building Society cut its maximum LTV from 75 per cent to 60 per cent. The Co-operative Bank has pulled out of this type of lending altogether.

Earlier this week, Mortgage Strategy revealed Royal Bank of Scotland had decided to only offer interest-only mortgages on an advised basis.

Chadney Bulgin mortgages partner Jonathan Clark says: “This unexpected alteration to their interest-only policy is a shock given Nationwide’s well-publicised appetite to lend at the moment and very concerning as other lenders may feel the need to follow their lead.”

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  • Phil 11th October 2012 at 10:02 am

    I think Bobby has a point. There are many clients who have a suitable repayment vehicle in place who can no longer remortgage due to lender criteria. This includes many people who have an endowment that is actually on track to pay their mortgage but lenders are choosing to ignore this. I do agree though that interest only is not for everyone and that many people are too stupid to understand the full implications of an interest only mortgage.

  • Bobby 10th October 2012 at 8:14 am

    Ok, the planet I am on is the one that allows a person over 40 years old to have some on their mortgage on an interest only basis as they have savings, investments, pension funds and numerous other ways of repaying this debt by the end of the mortgage. The planet I am on is the one where someone of 50 will be forced not to move as the payments on a 15 years repayment mortgage will be too probihitive especially as they will be paying money each month into savings vehicles for their mortgage. The planet I am on is a strange one of ” customer choice ” whereby people can make their own decisions and not be dictated to like silly little schoolkids. That is the planet I am on.

  • GHU 9th October 2012 at 11:26 am

    Sorry Bobby but I have to say this – ‘what planet are you on?’

  • GHU 8th October 2012 at 2:40 pm

    Ohh the great voices of self interest. Someone will lose a proc fee of £3,000 despite the fact his client doesn’t meet realistic afordability calculations. And why have Nationwides done it – because Capital repayment is more profitable than interest only.

  • Bobby 8th October 2012 at 12:01 pm

    If other lenders follow Nationwide it could mean anyone over 40 will not be able to get or afford a mortgage over less than 25 years, the worse the older you get and anyone under 40 cannot get a mortgage now anyway so it will totally kill the mortgage and property market off stone dead overnight. Utter madness. I think I have seen it al now.

  • BMH 5th October 2012 at 2:42 pm

    It is obvious that regulators are leaning on all mainstream lenders these days to pull out of what they (the FSA) perceive as risky business. Well, as we all know the FSA is mostly full of young fresh graduates with little concept or understanding of the fundamentals in which we operate.

    Many private banks will still permit interest only up to even 80%LTV for a “well-heeled applicant” like you are struggling to place Steve. Build relationships with these banks and you will be able to develop your own business into new areas.

    Within every crisis is an opportunity…

  • James 5th October 2012 at 1:37 pm

    The Voice of Reason | 5 Oct 2012 1:10 pm

    And it worries me you don’t fully understand there are still investments out there called full endowments that will definitely cover the full mortgage borrowing and there are those borrowers who have investments more than large enough to ensure their mortgage is repaid regardless of any downturns. As for being responsible for my advice, please don’t patronise me by thinking you know more than me.

  • Frank 5th October 2012 at 1:30 pm

    Re- voice of reason – MMR paper is not even final and issued yet so it might say and indeed it might not – to jump before being pushed is the issue – the rules in 2014 may be different but this is oct 2012

  • The Voice of Reason 5th October 2012 at 1:10 pm

    Everyone who is bemoaning the Nationwide withdrawal, you should seek to understand what the MMR is saying. It will fall upon whoever provides advice (yes, including us brokers) to prove that the loan is affordable FOR THE WHOLE TERM. With interest only, how is anyone going to prove that the current investment vehicle is going to continue to pay out over 25 years? It worries me, the people we have in the industry who don’t understand it!!

  • Tom Cleary 5th October 2012 at 11:37 am

    I am a broker of 22 years experience and I am personally delighted to witness the demise of interest only loans. I believe other major lenders will follow suit as if they don’t, they will quickly find themseleves inundated with interest only applications and their mortgage books will be out of kilter. I believe that interest only lending has only been prevalent in the UK and the USA, other countries have not offered mortgages on any other method than capital & interest, so what is the problem. I also believe that the parasitic ambulance chasing PPI claim firms have interest only firmly in their sights as the next big mis-selling scandal. Refunding insurance premiums is one thing, but having to settle an interest only mortgage is another thing entirely…

  • James 5th October 2012 at 10:43 am

    What happened to consumer choice? There are thousands of existing mortgage borrowers who have on track endowments or investments, including pension lump sums who don’t want the additional expense or don’t want to be forced into capital repyment borrowing on a remortgage to the Nationwide, or on a new purchase when they have a perfectly good repayment vehicle in place. The same repayment vehicle these lenders were more than happy to accept less than a couple of years ago. Are they actually trying to kill the UK property market stone cold dead? Because if they’re not they’re making a great fist of it. Madness indeed.

  • bobby 5th October 2012 at 9:13 am

    steve – try nothern rock who will do 70%?

    anon 5.51 – affordability should not be the reason for advising interest only! thats the whole problem

  • Bill 5th October 2012 at 8:53 am

    Very sensible decision, well done Nationwide, but long overdue. It really makes me laugh, at how quick people will look to borrow money, but aren’t sure how they are going to pay it back (Just put sale of property, that’ll be fine)! You can’t afford, you dont get. Its not a requirement everyone must get a mortgage.

  • Frank 5th October 2012 at 8:22 am

    MMR jan2014……..rubbish……..this is the regulator forcing the big lenders to pull interest only – what ever happened to best advice – interest only is good for some customers – investments tied up, moving to foreign parts in the near term , professionals with steep income curves – MMR oct 2012…….

  • The Cynical Broker 5th October 2012 at 8:20 am

    Nationwide is meant to be a building society and one that trumpets how wonderful and different it is from the “nasty” banks! Then it goes and does this ! Priceless hypocracy! Presumably their tagline will now read – “Nationwide, we’re on your side! (Unless you want an interest only mortgage, in which case we’re not!)

  • James Lindon-Travers 5th October 2012 at 8:15 am

    With the final cut of MMR just days away it seems astonishing that Nationwide have taken this decision. It appears to stem from their reluctance to monitor interest only repayment vehicles moving forward and concerns about their back book. Will this now mean that the remainder of the lemming like lenders will follow suit? And no doubt at the end of the year when they have missed their lending targets the likes of Wyles,Finlay,Sard,Felstead and Curran will be left scratching their heads again. In the lenders defence the FSA should have asked lenders not to review their stance on interest only pre-MMR.

  • john 4th October 2012 at 11:41 pm

    @ steve mcgill – seems to me your accountant should live within his means. poor old soul having to do less than a £1million property !!!

  • Paul Case 4th October 2012 at 5:51 pm

    I agree with Steve – the world has gone mad. Interest Only has a place in the market and for older clients is sometimes perhaps the only way they can afford the mortgage payments. If they or anybody else understand the risks then what is the problem.

  • steve mcgill 4th October 2012 at 4:54 pm

    only today i have had to turn down a ‘well heeled’ client (a chartered accountant) – wanting to buy for £1m at 70%LTV. he lives in London – where this will buy him an ordinary 4 bed detached. Even on his salary in excess of £180k – he wont service a repayment mortgage given his age and term. he has nowhere to go. Surely this type of person understands the ramifications of interest only and is clever enough to know that he must repay the capital before the end of the term.

    Bye bye almost £3k proc fee for what should have been an easy case to place. The worlds gone mad

  • Mary Lockyer 4th October 2012 at 4:44 pm

    My question is – not only when others will follow suit, but when this will creep into the Buy to let lending criteria too, as it is clear Lenders appetite for risk is behind this decision, are they anticipating a fall in house prices?

  • colin 4th October 2012 at 3:55 pm

    in truth we do next to nothing on Interest Only lending anyway, but there sometimes very good reasons and very good business to be done on Int Only.

    Nationwide taking the decision to exit this part of the market seems a bit shortsighted.

    The well heeled client earning good income, a large six figure mortgage at or around 50% LTV…surely this is good low risk profitable business…..that others will lap up…..for now at least!!!

  • colin 4th October 2012 at 3:48 pm

    LOL love the way they dress these things up as though they are bowing to consumer demand!!!!!!!- always a nameless spokesman too………..what utter drivel……its niche because the draconian one size fits all has made it almost impossible for anyone to fit the criteria….therefore borrowers have no choice

    A spokesman says: “We have decided that interest-only has become a niche product. We get few applications on an interest-only basis – less than 3 per cent – as borrowers want to certainty of a capital and interest mortgage.

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