Nationwide stops offering interest-only mortgages

| October 4, 2012 | 0 Comments
Nationwide stops offering interest-only mortgages

From 11 October new borrowers will no longer be able to take out an interest-only mortgage with Nationwide building society.

Nationwide is following the Co-op bank, which pulled out of interest-only mortgages in May, while Santander and HSBC only offer this type of product to house-buyers with a 50 per cent deposit.

Nationwide also previously offered interest-only deals to people with 50 per cent equity in their home, but has now decided to go one step further and suspend the product entirely.

Although only 3 per cent of Nationwide mortgage customers opt for an interest-only deal, Coreco, a leading London-based provider of independent mortgage and financial advice, said its decision to withdraw the product could affect other lenders.

Andrew Montlake of Coreco said: “This is a massive step for Nationwide to take and it could well have a big effect on other lenders who have been monitoring this sector of the market closely.

“Unfortunately, too many people have used interest-only in the past as a way of making sure they can actually afford the mortgage in the first place and deferred worrying about how they are going to pay it back.”

Interest-only mortgages allow borrowers to defer paying off the capital until the mortgage term ends, making them a high-risk product for lenders.

Nationwide’s decision is in preparation for new financial regulations which will require lenders to be more stringent when they check potential borrowers’ finances.

From next year, new interest-only borrowers must be able to afford their mortgages as if they were a capital-and-interest mortgage.

Meanwhile, Nationwide has reported a fall in house prices, with the North-South divide widening to £100,000.

Prices have fallen across the UK, but more significantly in the north than in the south.

A home in the South now costs an average of £231,245, compared with £135,340 in the North of Britain.

Northern Ireland has suffered the greatest slump, with house prices more than halving since their peak in 2007.

In contract, prices in London have fallen by less than 2 per cent.

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