The Co-operative Bank has become the latest lender to stop lending to new customers on an interest-only basis.
The decision also applies for mortgages offered through Britannia and residential mortgages offered through Platform.
From Tuesday 8 May, new customers at The Co-operative Bank will be able to take out mortgages on a capital and repayment basis only. This change will not affect existing interest only mortgage customers.
The Co-op says that currently less than 10% of its new mortgage customers are taking out mortgages on an interest only basis, as opposed to nearly 25% in 2007.
Existing interest-only mortgage customers will still be able to switch to any open product for the same amount of borrowing on an interest only basis when they come to the end of their deal. In addition they will also be able to take their interest only mortgage with them should they move home.
James Hillon, head of mortgages at The Co-operative Bank, said: “The mortgage market has changed greatly in the last four years and as a responsible lender we closely monitor these developments. With house prices continuing to stagnate, we’re seeing that buyers are increasingly taking a long term view to home ownership rather than seeing it as a route to watch their money grow quickly as was the case for many in the property boom years from the late 1990s onwards.
“We understand that all our customers have individual requirements and as a responsible lender we remain committed to working with them to find an affordable solution to owning their own home. For example we know that many customers historically turned to interest only mortgages as a way of meeting monthly outgoings when on a variable monthly income. For these customers we continue to offer a range of mortgages which enable them to make overpayments as and when they can afford to, then use their overpayments fund to meet repayments in the months where they earn less.”
