End for interest-only as Nationwide withdraws?

Risky interest-only mortgages look set to continue to disappear from mainstream lending after the Nationwide building society announced plans to stop offering them to new borrowers from next week.

The loans accounted for a third of all new mortgage borrowing in 2007, just before the credit crunch and subsequent property market collapse. But the Financial Services Authority subsequently slammed the deals, after many borrowers fell into negative equity when house prices fell. The City watchdog has called for interest-only to only be offered where there is a credible plan to repay the capital, rather than borrowers simply relying on their home increasing in value.

The Nationwide said: "Interest-only has become a niche product for us." This year the Co-operative pulled out of interest-only loans altogether while several key lenders, including Santander and Coventry building society, cut the maximum they will lend on interest-only from 75 per cent to 50 per cent.

Ben Thompson, of the Legal & General Mortgage Club, 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."

Adrian Anderson, of mortgage advisers Anderson Harris, said: "It might not be long before the only place you'll find an interest-only mortgage is a private bank."