Newcastle BS exits interest-only mortgage market
While it has pulled its interest-only mortgages with immediate effect (14 December), existing customers will be able to continue with their mortgages as normal. However, any further borrowing by will only be available on a capital and interest basis.
A spokesperson for the building society said: "There has been a general downward movement in the market place in the level of interest-only borrowing allowed by lenders, with many already having withdrawn from the market. Our move is a reflection of this to ensure we are not out of line with the rest of the sector."
Dale Jannels, managing director of mortgage broker All Types of Mortgages, says: "It's disappointing to see another lender withdraw from interest-only as there is still a good demand and a rightful need for such a product.
"We need consumer choice and this is quickly disappearing with regards to mortgage repayment options. My concern is that lenders are being too quick to jump on this band wagon to the detriment of suitable applicants."
Nationwide, NatWest, Royal Bank of Scotland and Coventry Building Society have also withdrawn their interest-only products. But the market has recently attracted Hinckley & Rugby as a new entrant and Abbey has relaxed its interest-only lending criteria within the last few weeks. It is now accepting loan applications from new borrowers for up to 75% LTV, with up to 50% of the loan available on an interest-only basis.
A loan in which the borrower pays only the interest on the sum borrowed for the life of the mortgage but, at the end of the mortgage term, they still owe what they originally borrowed as this remains unchanged. The advantage of an interest-only mortgage is the monthly repayment is considerably lower than for a comparable repayment mortgage. Lenders generally insist the borrower also invests in an endowment, ISA or pension savings policy that, on maturity, is intended to pay off the capital loan.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.