Interest-only home loans' future takes double blow

NatWest and RBS are the latest high street names to withdraw from market

The future of the market in interest-only mortgages, which accounts for nearly one in 10 of all UK home loans, has been thrown into further doubt as the Royal Bank of Scotland and Natwest withdrew their range of products.

The decision by two of the country's biggest high street names to exit interest-only is being seen as a watershed moment for the product.

"The fact that RBS and Natwest have finally given up the ghost on interest-only lending, especially after Nationwide's withdrawal a few weeks ago, could well be a game changer in the fortunes of mainstream interest-only mortgages," Andrew Montlake, a director at mortgage brokers Coreco said.

"It does look increasingly like interest-only is destined to survive only as a niche product or the preserve of the wealthy through the private-banking fraternity."

This was underlined when Coventry building society also withdrew from the market. The Coventry said it was leaving because of the lack of popularity of this type of home loan: "Interest-only mortgages have declined to less than 2 per cent of all residential mortgage applications," said Colin Franklin, Coventry's sales and marketing director. "We have therefore decided the time is right to leave this market."

Only Santander seems to be bucking the trend by upping its interest-only mortgage range.

The sale of interest-only mortgages has long been controversial as during the property boom at the start of the decade the number of these loans soared. By 2006, a third of all new home loans were interest-only but with the subsequent fall in property prices many borrowers find themselves in negative equity.

In addition, because the capital sum is left to be paid on expiry of the mortgage, there has been widespread concerns that many borrowers have no proper investment vehicle in place to repay their debt. In response, regulators have drawn up tough guidelines for the sale of interest-only products.

There is even some alarm within the banking industry that a good proportion of such mortgages taken out during the boom could potentially have been mis-sold and that claims for compensation could come.

Mike Harris, from a brokers SPF Private Clients, reckons the pendulum has swung too far: "Interest-only is not suitable for everyone and in retrospect perhaps at the height of the market they were dished out rather too freely. It is a shame that lenders follow each other like sheep and are all reining in their interest-only lending."

If the market continues to shrink it could be left to private banks and bridging lenders – which have a chequered past – to offer these type of loans.

Suggested Topics
FootballGerman sparks three goals in four minutes at favourite No 10 role
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam