Co-op Pulls Out Of Interest-only Mortgages

The Co-operative Bank is to pull the plug on new interest-only residential mortgages

. It is the first major lender to do, paving the way for others to do the same.

Notably, the bank already has some 60,000 customers on interest-only, but their ranks will not be swelled. From next Tuesday, Co-op borrowers will only be able to take out mortgages on a capital and repayment basis. The change will not affect existing interest-only customers unless they want to take out additional borrowing.

The change applies only to residential mortgages, not buy-to-let, and will affect residential mortgages offered through Britannia and Platform, the Co-ops intermediary arm.

The bank says that currently fewer than 10% of its new mortgage customers are taking out interest-only mortgages, down from almost 25% in 2007.

James Hillon, head of mortgages at the Co-operative Bank, said: The mortgage market has changed greatly in the last four years and as a responsible lender we closely monitor these developments.

With house prices continuing to stagnate, were seeing that buyers are increasingly taking a long-term view to home ownership rather than seeing it as a route to watch their money grow quickly as was the case for many in the property boom years from the late 1990s onwards.

We understand that all our customers have individual requirements and, as a responsible lender, we remain committed to working with them to find an affordable solution to owning their own home. For example, we know that many customers historically turned to interest-only mortgages as a way of meeting monthly outgoings when on a variable monthly income.

For these customers we continue to offer a range of mortgages which enable them to make overpayments as and when they can afford to, then use their overpayments fund to meet repayments in the months where they earn less.

In March, the Co-operative Bank launched a major communications campaign, writing to its many existing interest-only customers to remind them of the need to have a repayment strategy in place, and to make them aware of various options.

by: Introducer Today

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