Interest-only mortgages will be even tougher to come by from next week as two major lenders announced plans to limit their availability.
HSBC and the Yorkshire Building Society will both impose new rules from Monday, which will affect new borrowers only.
The changes to HSBC’s rules mean that customers applying for a residential interest-only mortgage will need to hold one of its premier bank accounts, which are only available to people with a high net worth.
People with a premier account need to have an individual annual income of £100,000 and to hold certain products with HSBC or they need to have £50,000 in savings or investments put away with the bank in the UK.
HSBC said that the majority of its existing interest-only customers qualified for a premier account and it would continue to offer interest-only deals at a maximum loan-to-value (LTV) of 75 per cent.
Meanwhile, Yorkshire Building Society, the UK’s second largest mutual, said that from Monday, interest-only deals would only be available to people looking for a buy-to-let deal through its broker-facing brand Accord.
A spokeswoman for Yorkshire Building Society said the interest-only market had reduced “considerably”.
She said the changes would not impact on existing borrowers.
Most banks have been tightening up their lending on such mortgages, which allow borrowers to only pay off the capital when the mortgage term ends, enabling them to maximise their initial borrowing capacity.
HSBC said it was introducing the restrictions in anticipation of toughened mortgage rules coming into place from next year, which would see interest-only deals considered ‘niche’ products.
Fears have been raised in recent years of an interest-only mortgage ‘time bomb’ across the industry, due to concerns many people who have taken out such a loan had pinned their hopes on house prices rising.