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Co-op Bank halts interest-only lending

Co-op Bank halts interest-only lending

Category: Mortgages

Updated: 02/05/2012
First Published: 02/05/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Co-operative Bank has announced that it is withdrawing interest only mortgages for new customers.

The provider said that it was making the move before next year's Mortgage Market Review by the Financial Services Authority which is expected to usher in tougher restrictions on interest-only deals.

The Co-op said it experts to see a move to all customers who apply for a mortgage being assessed on the basis that they can afford a capital and repayment loan.

Falling house prices and low interest rates have seen interest-only mortgages fall out of favour in recent years, with Co-op saying that less than 10% of new mortgage customers at the bank are taking out interest-only deals.

It is a figure that has fallen rapidly from almost 25% in 2007 when the housing market was at its peak.

The change will not affect existing customers on interest only mortgages, and they will also be allowed to take their existing deal with them should they move home.

Existing customers will also be permitted to switch to any open product for the same amount of borrowing on an interest-only basis when they come to the end of their deal.

The above changes will also apply for mortgages offered through Britannia and residential mortgages offered through Platform, the dedicated intermediary lender for The Co-operative Bank.

"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," James Hillon, head of mortgages at The Co-operative Bank.

"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."

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