Nationwide building society has said it will no longer sell mortgages on an interest only basis.
From 1st October 2012 lenders will make the move to ensure borrowers are not taking on loans they cannot afford to repay.
The interest only mortgages, where borrowers pay the interest every month but don’t pay off the capital they borrowed until the end of the mortgage term, were a way homebuyers could maximise the amount they could borrow and were popular during the housing market boom.
Buyers were supposed to have an investment in place to repay the debt but some gambled on rising house prices to enable them to cover the debt.
It means that Nationwide will now only allow new customers to take mortgages on a repayment basis.
The Financial Services Authority is expected to tell lenders that they need to assess affordability on interest only mortgages and make sure the borrower would have been able to repay the loan if it had been taken on a repayment basis.
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