Death-knell for interest-only mortgages

The Cooperative Bank has become the first major lender to pull out completely from offering interest-only mortgages.

The move comes in the wake of a clampdown from the City watchdog, the FSA, which wants all mortgage applications to be assessed on a capital repayment basis.

With an interest-only mortgage, the borrower only has to pay the monthly interest bill, without making regular payments to reduce the size of the loan.

Santander, Lloyds and Barclays have already made it much harder to qualify for an interest-only loan.

Now the Coop, the UK's 10th largest mortgage lender, says it has decided to pull out of the market. The decision also applies to the Britannia, which was taken over by the Cooperative Bank in 2009.

The group's 60,000 customers who already have the loans will be able to apply for new Coop-branded interest-only loans - but they'll find it very difficult to shop around for a better deal.