Here lies the body of the interest only mortgage

Interest-only mortgages have taken another step towards extinction with Nationwide and now Coventry Building Society demanding that new borrowers have 50pc equity in their home if they want to avoid making capital repayments.

Both, which previously lent on an interest-only basis to borrowers with 25pc equity or deposit, sited the need to "manage application levels" following similar moves from competitors. The change applies to residential customers and takes effect on March 21.

Existing Nationwide borrowers will be unaffected if they want to stay with their current deal. They can also switch to another mortgage or move home without falling foul of the new restrictions, unless they want to increase their borrowings. Anyone who wanted to borrow more would have to take out a repayment mortgage or ensure that their equity remained above 50pc of the total amount borrowed.

The change also applies to Nationwide's other building society brands, such as the Derbyshire, Cheshire and Dunfermline. However, buy-to-let lending through its The Mortgage Works arm is not affected.

Last month Santander did the same, while Lloyds Banking Group, which also includes Halifax has also toughened its criteria by specifying which assets it would accept as "repayment vehicles" to pay off the loan at the end of the term.

We certainly feel that other lenders currently offering interest-only loans at 25pc equity, such as HSBC and Woolwich, could be next to restrict this type of lending.

Last week the financial regulator also expressed concern about interest-only home loans, warning of a ‘ticking time bomb’ for those approaching retirement with interest only mortgages who are unable to repay them.

It is a shame for borrowers that Nationwide has introduced these restrictions but no real surprise. It's like a pack of cards; one lender folds and the others inevitably follow. Since Santander tightened its interest-only policy, borrowers requiring such deals have flocked to Nationwide and it is having to tighten its criteria in order to cope.

Interest-only borrowing is not necessarily reckless borrowing as long as there is a repayment strategy in place. However, we are getting closer and closer to seeing it disappear altogether, making mortgage prisoners of those who have an interest-only mortgage unless they can switch to repayment.

The changes are likely to force a rethink of how to repay the mortgage simply because of the level of equity in the home rather than the existence of a prudent repayment strategy.