In a broker statement, Santander explained changes to its £150,000 minimum equity requirement would apply to part interest-only deals where the property is being used as the repayment vehicle at the end of the term.
The sale of a property under a pure interest-only mortgage will still be based on the deposit or equity at application, which is also a minimum of £150,000.
According to recent research published by Ocean Finance, almost three-quarters of homeowners with interest-only mortgages are worried about not being able to repay their loan.
In the run up to the financial crisis large amounts of borrowers took out interest-only loans to keep their repayments down. However, many lenders pulled out of the market in 2012 after it was clear that many borrowers had taken out the loans with no real proof of how they would repay the capital element.
A number of lenders have refreshed their interest-only propositions over the past months, with Natwest launching back into the market last year.
Santander will introduce the criteria change from Sunday 21 February for new cases, or where a material change is being made to an application and is submitted before close of business Saturday 20 February.
Applications submitted through Santander’s introducer internet by close of business on 20 February will not be affected by the changes.