HSBC and Yorkshire Building Society (YBS) have become the latest lenders to pull out of interest-only mortgages amid growing concern about borrowers struggling to pay them back.
YBS withdrew from the market for new borrowers altogether yesterday, while HSBC said interest-only mortgages would now only be available to new existing Premier customers – those with at least £50,000 of savings or investments with the bank – or individuals with annual income of at least £100,000.
A spokesperson for HSBC said: "The changes are being made ahead of the Mortgage Market Review, which is expected to treat interest-only mortgages as a niche product offering when it comes into force in April 2014."
A YBS spokesperson said: "Interest-only mortgages will continue to be available for buy-to-let only from Accord Mortgages, the intermediary lending subsidiary of Yorkshire Building Society."
Contact your lender
Ray Boulger, senior technical manager at mortgage broker John Charcol, encourages borrowers worried about repaying their interest-only mortgage to contact their lender to see what alternative mortgage deals it can offer.
While interest-only customers looking to switch to repayment mortgages will likely face an increase in monthly fees, the mortgage rates they secure will depend on their age and how much equity they have in their home.
HSBC and YBS are the latest lender to restrict the availability of interest-only mortgages, following in the footsteps of Nationwide and the Co-operative Group.
What is an interest-only mortgage?
An interest-only mortgage allows borrowers to improve their cashflow by being able to repay the capital amount at the end of the term so that their monthly repayments only cover interest.
For lots of borrowers, the hope was that rising house prices over the long term would mean they built up sufficient equity to be able to more than repay the mortgage. They were popular in the 1990s through to 2007, but have become scarce since the credit crunch.