UK Bank Withdraws Interest Only Mortgages

Online, May 10, 2012 (Newswire.com) - The Co-operative Bank withdrew its interest only mortgage from the market leaving new customers only capital and repayment mortgage products available. Already 60,000 customers have taken out interest only mortgages. It is expected that these existing customers could find it difficult to find another interest only mortgage when their mortgage term expires and when they want to buy a property for sale. Existing borrowers will not be able to borrow additional finance on an interest only basis and any new borrowing will be done on a capital repayment mortgage deal.

An uncertain economic climate and the stagnant effect on house prices have caused the latest withdrawal of the interest only mortgage product. Soaring house price values can no longer be relied upon to pay off outstanding capital sums on an interest only loan.

In order to reduce the risk to lenders, and following the Financial Service Authority's mortgage review on interest only lending, interest only mortgage products are being restricted or withdrawn from the market because borrowers are not likely to have appropriate plans to repay the outstanding mortgage debt at the end of the interest only mortgage term.

A report by the Independent on Sunday who analysed data produced by the Financial Services Authority (FSA) showed that out of 150,000 interest only mortgages that are taken out and that are due to mature in the next eight years, 60,000 are likely to be in shortfall.

The latest withdrawal comes in the wake of a number of major lenders withdrawing or restricting their interest only mortgage products to borrowers. Major lenders including ING Direct, Santander, Coventry and Nationwide have restricted their interest only mortgages to a loan to value of at least 50 per cent of the property value or more.

Other restrictions that have been introduced include stricter criteria on loan repayment means which now excludes cash savings.

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