Nationwide Clamps Down on Interest-Only Mortgages

The Nationwide building society has become the latest lender to crack down on interest-only mortgages, insisting that any new residential borrowers must have at least 50 per cent equity in their property if they wish to avoid capital repayments on their home loan. Previously, Nationwide was prepared to arrange interest-only mortgages with borrowers who had 25 per cent equity in their homes or a 25 per cent deposit, but it said this week that it was essential for it to “manage application levels” after its competitors announced they were tightening the criteria for interest-only mortgages. The change will come into effect on 21 March and will also apply to the other building societies coming under the aegis of Nationwide, the Cheshire, Derbyshire and Dunfermline. Buy-to-let mortgages being arranged through The Mortgage Works will not be affected. Nationwide stressed that existing mortgage-holders with the building society will also not be affected by the change, although they also have the choice of switching to another form of loan or moving home to a similarly priced property. On the same day, the Coventry Building Society said that it was raising the minimum equity level on its interest-only mortgages to 50 per cent from 22 March. The move follows last month’s announcement by banking giant Santander that it was restricting its interest-only mortgages a decision which was soon echoed by the Lloyds banking group, which includes major lender Halifax. Speculation is now rife as to whether other lenders, such as HSBC and Woolwich, will now follow suit.