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You can find the current article at its original source at http://www.guardian.co.uk/money/2012/nov/29/coventry-building-society-pulls-out-interest-only-mortgages
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| Version 2 | Version 3 |
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| Coventry pulls out of interest-only mortgage lending | Coventry pulls out of interest-only mortgage lending |
| (about 20 hours later) | |
| Coventry Building Society has become the latest lender to stop offering interest-only mortgages to borrowers, hot on the heels of RBS and NatWest. | Coventry Building Society has become the latest lender to stop offering interest-only mortgages to borrowers, hot on the heels of RBS and NatWest. |
| The move out of the loans, which allow borrowers to raise a mortgage and only pay off the interest each month, leaving the original debt to be cleared at the end of the term, effects residential purchases but not buy-to-let mortgages. | The move out of the loans, which allow borrowers to raise a mortgage and only pay off the interest each month, leaving the original debt to be cleared at the end of the term, effects residential purchases but not buy-to-let mortgages. |
| Colin Franklin, the society's sales and marketing director, said the decision was in response to falling demand. | Colin Franklin, the society's sales and marketing director, said the decision was in response to falling demand. |
| "Residential interest-only mortgages have declined to less than 2% of all residential mortgage applications. We have therefore decided the time is right to leave this market," he said. | "Residential interest-only mortgages have declined to less than 2% of all residential mortgage applications. We have therefore decided the time is right to leave this market," he said. |
| Existing customers on interest-only deals will be able to port their mortgage to a new property or deal, but will not be able to increase their borrowing unless the extra debt is taken on a repayment bases. | Existing customers on interest-only deals will be able to port their mortgage to a new property or deal, but will not be able to increase their borrowing unless the extra debt is taken on a repayment bases. |
| Nationwide building society and Co-operative bank pulled out of offering interest-only loans in the summer, ahead of the Financial Services Authority's report on the mortgage market which introduced new rules for lenders. | Nationwide building society and Co-operative bank pulled out of offering interest-only loans in the summer, ahead of the Financial Services Authority's report on the mortgage market which introduced new rules for lenders. |
| Although a ban on this type of loan was considered, the FSA rejected the idea but said lenders need to be careful about testing affordability to make sure borrowers are not taking on loans they cannot ultimately repay. | Although a ban on this type of loan was considered, the FSA rejected the idea but said lenders need to be careful about testing affordability to make sure borrowers are not taking on loans they cannot ultimately repay. |
| When the housing market was booming many borrowers took up interest-only deals to maximise the amount they could borrow and limit their monthly repayments, but some had no plans in place to repay the loan and expected to be able to use profits from their property to clear the debt. | When the housing market was booming many borrowers took up interest-only deals to maximise the amount they could borrow and limit their monthly repayments, but some had no plans in place to repay the loan and expected to be able to use profits from their property to clear the debt. |
| The slump in house prices meant this became unrealistic for some and led lenders to demand better repayment plans and reduce the amount they were willing to lend on an interest-only basis. | The slump in house prices meant this became unrealistic for some and led lenders to demand better repayment plans and reduce the amount they were willing to lend on an interest-only basis. |
| Although tighter lending criteria and more caution among borrowers and lenders means interest-only deals are becoming a niche product, one lender, Santander, has said it is willing to be more flexible on the loans. | Although tighter lending criteria and more caution among borrowers and lenders means interest-only deals are becoming a niche product, one lender, Santander, has said it is willing to be more flexible on the loans. |
| It had restricted lending to 50% of a property's value if there was any interest-only element, but has recently increased that figure to 75% – although the interest-only part of the loan is still capped at 50%. | It had restricted lending to 50% of a property's value if there was any interest-only element, but has recently increased that figure to 75% – although the interest-only part of the loan is still capped at 50%. |
| Andrew Montlake, director of mortgage broker Coreco, said the decision by NatWest and RBS to follow Nationwide may have been a "game changer". | Andrew Montlake, director of mortgage broker Coreco, said the decision by NatWest and RBS to follow Nationwide may have been a "game changer". |
| "As the larger lenders pull out of the market it is almost inevitable that some small to medium lenders will be forced to act, and with Coventry now following suit the snowball is picking up speed down the hill. | "As the larger lenders pull out of the market it is almost inevitable that some small to medium lenders will be forced to act, and with Coventry now following suit the snowball is picking up speed down the hill. |
| "Whether this is the final nail in the coffin remains to be seen, but it does look increasingly like interest-only is destined to survive only as a niche product or as the preserve of the wealthy through the private banking fraternity." | "Whether this is the final nail in the coffin remains to be seen, but it does look increasingly like interest-only is destined to survive only as a niche product or as the preserve of the wealthy through the private banking fraternity." |
| Mark Harris, chief executive of mortgage broker SPF Private Clients, said it was wrong to demonise interest-only loans, as they did have a role for some buyers. | Mark Harris, chief executive of mortgage broker SPF Private Clients, said it was wrong to demonise interest-only loans, as they did have a role for some buyers. |
| "Interest-only is necessary, suitable and appropriate for a certain type of borrower. It is not suitable for everyone and in retrospect perhaps at the height of the market interest-only mortgages were dished out rather too freely," he said. | "Interest-only is necessary, suitable and appropriate for a certain type of borrower. It is not suitable for everyone and in retrospect perhaps at the height of the market interest-only mortgages were dished out rather too freely," he said. |
| "It is a shame lenders follow each other like sheep and are all reining in their interest-only lending." | "It is a shame lenders follow each other like sheep and are all reining in their interest-only lending." |
| The news came as the Bank of England published lending figures for October which showed small increases in the number of mortgages for house purchases and remortgaging. | The news came as the Bank of England published lending figures for October which showed small increases in the number of mortgages for house purchases and remortgaging. |
| A total of 52,982 deals were approved for house purchases, more than the previous six-month average of 48,880, while 29,358 remortgages were approved against a previous six-month average of 27,602. | A total of 52,982 deals were approved for house purchases, more than the previous six-month average of 48,880, while 29,358 remortgages were approved against a previous six-month average of 27,602. |
| The Bank also revealed that the average cost of a fixed-rate mortgage fell in October to 3.99%, but the cost of a variable rate loan rose to 3.25%. This was the highest level for two years. | The Bank also revealed that the average cost of a fixed-rate mortgage fell in October to 3.99%, but the cost of a variable rate loan rose to 3.25%. This was the highest level for two years. |
| The continued low level of purchases is keeping house prices down, with Nationwide reporting a year-on-year fall of 1.2% in November. During the month it said prices had remained unchanged. | The continued low level of purchases is keeping house prices down, with Nationwide reporting a year-on-year fall of 1.2% in November. During the month it said prices had remained unchanged. |
| Howard Archer, chief UK economist at IHS Global Insight, said: "Significant downside risks remain to house prices, but the recent signs of modestly improving housing market activity and the likely increasing beneficial impact of the Funding for Lending Scheme on mortgage lending lead us to believe house prices are now likely to be essentially stable over the coming months. | Howard Archer, chief UK economist at IHS Global Insight, said: "Significant downside risks remain to house prices, but the recent signs of modestly improving housing market activity and the likely increasing beneficial impact of the Funding for Lending Scheme on mortgage lending lead us to believe house prices are now likely to be essentially stable over the coming months. |
| "However, we still suspect that any significant, sustainable turnaround in house prices is still some way off." | "However, we still suspect that any significant, sustainable turnaround in house prices is still some way off." |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| HSBC | HSBC |
| Nationwide | Nationwide |
| Provided by London & Country for the Guardian |