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.”