The last time Nationwide Building Society offered an interest-only mortgage was eight years ago. But the lender is now reintroducing them for borrowers looking for more mortgage flexibility.
Interest-only mortgages currently account for approximately 7% of the mortgage market. However, interested borrowers will need to meet some stringent conditions to qualify.
For the new Nationwide interest-only mortgage products, there are criteria that apply. One is that applicants need a minimum equity of £200,000, unless they are in the south-east where £250,000 is required. In London, this increases to £300,000.
Strict customer profile
The maximum loan to value (LTV) ratio will be 60%, and there will be a minimum income requirement of £75,000 for individual applicants or £100,000 for joint income applications. Plus, a minimum mortgage term of 25 years or retirement if sooner is a pre-requisite. Further to this, customers will only be able to access the interest-only products through mortgage brokers.
Nationwide will also be offering “part and part” mortgages. This means borrowers will be permitted a middle-ground between repayment and interest-only mortgages based on the same criteria.
Supporting good applicants
Henry Jordan, Nationwide director of mortgages, said: “As the UK’s second-largest lender, it is natural that we continue to look at ways we can support the mortgage market.
“At almost 7%, interest-only remains an important part of the market and one we are keen to support by providing access to our standard product range to applicants with good equity and stable income profile.”
According to Mortgage Solutions, Nationwide is targeting the proposition at higher earners looking for mortgage flexibility. This means it does not apply to borrowers who cannot afford a full repayment mortgage.
The risk of future negative equity is a concern for all lenders. Nationwide’s parameters for this mortgage and the requirement of a realistic means of repaying the debt should reduce their exposure.