Nationwide’s decision to pull out of interest-only mortgage lending may be a first – but may not be the last, says Ben Thomson, managing director of Legal & General Mortgages.
Nationwide, the UK’s third largest lender, yesterday announced that as from next week, it will stop offering interest-only mortgage deals. It is the first lender to completely shut the door on the loans, although others have been tightening up their criteria ahead of warnings that many interest-only borrowers have no means of repaying their mortgages.
Thomson said of Nationwide’s decision: “This will come as a surprise but probably not as a shock. The number of mortgages taken out on an interest-only basis over the last year or so has been dropping significantly and therefore a decision like this now whilst frustrating for some, won’t impact as badly as it would have done if pulled over a year ago.
“What’s most interesting is what happens next. Some will no doubt follow this move as they won’t want to be selected against for interest-only. However others will see this as an opportunity.
“It is clear that for the lenders that are prepared to take the necessary steps and checks required to assess the genuine plausibility of interest-only repayment plans, this represents an opportunity. 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.”
David Hollingworth, of London & Country, said: “Nationwide’s move is the final chapter for interest-only mortgages.” He predicted more ‘copycat changes’ from other lenders.
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