I have received an update from Nationwide this afternoon advising that the lender will no longer offer interest-only mortgages to new borrowers or existing borrowers requiring additional capital.

The change takes effect from Thursday 11 October.

Existing customers may retain their interest-only mortgage, but cannot increase their borrowing on that basis.

Up until now no-one has had the courage to do this but now Nationwide has opened the door it could only be a matter of time before other lenders follow suit.  It is well known in the industry that other lenders have been monitoring this sector of the market very closely.

Whether this is the final nail in the coffin for mainstream interest only mortgages remains to be seen, although with these things 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 rapidly.

Royal Bank of Scotland announced on Tuesday this week it would only take applications for interest-only mortgages on an advised basis.