The change takes effect from Thursday 11th October.
The broker statement which went out this afternoon said: “We will no longer offer interest-only mortgages for any new or additional borrowing.
“Existing customers may retain their interest-only mortgage, but cannot increase their borrowing on that basis.
“There are no other changes to criteria or products.”
Brokers have been told to reserve existing products through NFI Online or NFI MTE until 5.00pm on 10 October and the helpline number offered is 0845 601 0763.
Paper applications must be faxed to 01604 852 879, or received in the Service Centre at the address below, before 5.00pm on 10 October 2012.
A spokesperson for Nationwide told Mortgage Solutions: “Nationwide has seen a sharp decline in lending on interest-only products in recent times and currently only 3% of our new lending is interest-only.
“This will not affect any existing customers as those already on interest-only will be able to continue on an interest-only basis, only existing borrowers seeking to increase their loan will be moved onto a repayment product.”
Ian Gray, senior partner at Largemortgageloans.com said this is a hammer blow to the industry.
“This will start a frenzy with brokers rushing interest-only applications in and lenders beginning to follow Nationwide’s suit within the week.
“No-one is the had the courage to do this but now Nationwide has opened the door. Another worry is how far lenders will go. Will they start trying to switch people off interest-only despite the contractural arrangements. Lenders have been known to do that before.”
Gray said the private banks are likely to continue to offer interest-only but only to qualifying clients with a minimum of £500k to £1m in investible assets.
Andrew Montlake, director, Coreco Independent Mortgage Brokers said: “This is a massive step for Nationwide to take and it could well have a big effect on other lenders who have been monitoring this sector of the market closely.
“Whether this is the final nail in the coffin for mainstream interest only mortgages remains to be seen, although I do not think we will see the end of it totally. As with anything, when faced with potential new regulation or post-crises there is often an over-reaction and the pendulum swings too far in the other direction before settling back to a sensible middle ground.
“Interest-only is now very much consigned to the niche product area and those who will be hit the most are existing interest-only borrowers who are seeing their remortgage options disappear before their eyes.”
Ben Thompson, managing director of Legal & General mortgage club said what’s most interesting is what happens next.
“Some will no doubt follow this move as they won’t want to be selected against for interest-only, however, others will see this as an opportunity.
“It is clear that for the lenders that are prepared to take the necessary steps and checks required to assess the genuine plausibility of interest-only repayment plans, this represents an opportunity.
“There has for some time been a view that interest only would end up as some sort of niche, with a lengthier process and more regular checks in place, and a slightly loaded pay rate. It looks as though we might well have just seen the catalyst for this change.”
Royal Bank of Scotland announced on Tuesday this week it would only take applications for interest-only mortgages on an advised basis.
