The move comes ahead of new rules, which come into force in April next year, which will result in far more stringent affordability tests on borrowers applying for such loans, which which allow borrowers to raise a mortgage and only pay off the interest each month, leaving the original debt to be cleared at the end of the term.
From today new borrowers will not be able to arrange their loans on an interest-only basis through HSBC – unless they have a Premier account – or at any of Yorkshire Building Society’s brands, which include Accord and Chelsea Building Society. The bank said most customers using interest-only homes loans earned enough to qualify for a Premier account.
A statement issued by the bank said that existing borrowers who had an interest-only mortgage would retain their interest-only terms on existing borrowing, but would be subject to the new policy changes when applying for new or additional money.
Yorkshire Building Society sent an e-mail to brokers telling them that a regular review had revealed that the interest-only market had reduced considerably in recent months. In the planned changes existing customers with residential interest-only mortgages would be able to move the loan to a new property, but any extra borrowing would need to be taken on a repayment basis. They would continue to offer buy-to-let mortgages on an interest-only basis through their broker.
The withdrawal of HSBC and Yorkshire Building Society from the mainstream interest-only market has been described as ‘worrying’ by a mortgage broker spokesman. Other lenders, including NatWest and Nationwide Building Society, have already withdrawn. When the housing market was booming many borrowers took up interest-only deals to maximise the amount they could borrow and limit their monthly repayments, but some had no plans in place to repay the loan and expected to be able to use profits from their property to clear the debt.