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You can find the current article at its original source at http://www.guardian.co.uk/money/2012/oct/04/nationwide-abolishes-interest-only-mortgage-deals
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| Version 3 | Version 4 |
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| Nationwide abolishes interest-only mortgage deals | Nationwide abolishes interest-only mortgage deals |
| (12 days later) | |
| Nationwide building society has announced it will no longer sell mortgages on an interest-only basis. | Nationwide building society has announced it will no longer sell mortgages on an interest-only basis. |
| The rule change, which will come into effect on 11 October, is the latest move by lenders to make sure borrowers are not taking on loans they cannot afford to repay. | The rule change, which will come into effect on 11 October, is the latest move by lenders to make sure borrowers are not taking on loans they cannot afford to repay. |
| The deals, where borrowers pay interest every month but don't pay off the capital they borrowed until the end of the mortgage term, were popular during the housing market boom when some homebuyers saw them as a way to maximise the amount they could borrow. | The deals, where borrowers pay interest every month but don't pay off the capital they borrowed until the end of the mortgage term, were popular during the housing market boom when some homebuyers saw them as a way to maximise the amount they could borrow. |
| While buyers were supposed to have an investment in place to repay the debt, some gambled on rising house prices to allow them to cover the borrowing. | While buyers were supposed to have an investment in place to repay the debt, some gambled on rising house prices to allow them to cover the borrowing. |
| In common with many other lenders Nationwide had already reduced the amount it would lend on interest-only mortgages: it was only allowing loans of up to 50% of the property's value. | In common with many other lenders Nationwide had already reduced the amount it would lend on interest-only mortgages: it was only allowing loans of up to 50% of the property's value. |
| The latest rule change means new customers at the society will only be able to take on mortgages on a repayment basis. | The latest rule change means new customers at the society will only be able to take on mortgages on a repayment basis. |
| This follows a similar announcement by Royal Bank of Scotland which is stopping direct sales of interest-only loans, but will allow borrowers who are using a mortgage broker to still apply for them. | This follows a similar announcement by Royal Bank of Scotland which is stopping direct sales of interest-only loans, but will allow borrowers who are using a mortgage broker to still apply for them. |
| The Nationwide decision comes ahead of an announcement by the Financial Services Authority in which it is expected to tell lenders that when they assess affordability on interest-only mortgages they should make sure the borrower would have been able to repay the loan if it had been taken on a repayment basis. | The Nationwide decision comes ahead of an announcement by the Financial Services Authority in which it is expected to tell lenders that when they assess affordability on interest-only mortgages they should make sure the borrower would have been able to repay the loan if it had been taken on a repayment basis. |
| A spokeswoman for Nationwide said if that rule was introduced it would make the assessment of these loans more expensive, and the society decided it was not right to pass that cost on to members. | A spokeswoman for Nationwide said if that rule was introduced it would make the assessment of these loans more expensive, and the society decided it was not right to pass that cost on to members. |
| She said that while 20% of Nationwide's back book of mortgages were held on an interest-only basis, against an industry average of 40%, among new borrowers only 3% of loans were taken as interest-only deals. | She said that while 20% of Nationwide's back book of mortgages were held on an interest-only basis, against an industry average of 40%, among new borrowers only 3% of loans were taken as interest-only deals. |
| "It is increasingly a niche product so we had to ask is it right for Nationwide to be offering them," the spokeswoman said. | "It is increasingly a niche product so we had to ask is it right for Nationwide to be offering them," the spokeswoman said. |
| The society said existing borrowers holding mortgages on an interest-only basis would be able to switch to new Nationwide deals on the same basis, or move their loan to a new property, but any extra borrowing would have to be done as a repayment loan. | The society said existing borrowers holding mortgages on an interest-only basis would be able to switch to new Nationwide deals on the same basis, or move their loan to a new property, but any extra borrowing would have to be done as a repayment loan. |
| Stuart Gregory of broker Lentune Mortgage Consultancy said he was surprised Nationwide had been the first major lender to pull out of this market. "More will follow – it's just a case of how many decide to make the same change." | Stuart Gregory of broker Lentune Mortgage Consultancy said he was surprised Nationwide had been the first major lender to pull out of this market. "More will follow – it's just a case of how many decide to make the same change." |
| He said although Nationwide was looking after its own existing customers, he was concerned for interest-only borrowers with other lenders who were becoming "mortgage prisoners" as their remortgage choice dwindled. | He said although Nationwide was looking after its own existing customers, he was concerned for interest-only borrowers with other lenders who were becoming "mortgage prisoners" as their remortgage choice dwindled. |
| Ben Thompson, managing director of Legal & General Mortgage Club, said the recent drop in applications for interest-only borrowing meant Nationwide's decision would not have the same impact as it would have had a year ago. | Ben Thompson, managing director of Legal & General Mortgage Club, said the recent drop in applications for interest-only borrowing meant Nationwide's decision would not have the same impact as it would have had a year ago. |
| "It is clear that for the lenders prepared to take the necessary steps and checks required to assess the genuine plausibility of interest-only repayment plans, this represents an opportunity," he said. | "It is clear that for the lenders prepared to take the necessary steps and checks required to assess the genuine plausibility of interest-only repayment plans, this represents an opportunity," he said. |
| "There has for some time been a view that interest-only would end up as some sort of niche, with a lengthier process and more regular checks in place and a slightly loaded pay rate. It looks as though we might well have just seen the catalyst for this change." | "There has for some time been a view that interest-only would end up as some sort of niche, with a lengthier process and more regular checks in place and a slightly loaded pay rate. It looks as though we might well have just seen the catalyst for this change." |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| Yorkshire BS | |
| Nationwide | Nationwide |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |