Virgin Money has reduced the maximum lending limit for interest-only mortgages to 75% from 70%.
A flood of lenders have capped their interest-only lending since Santander slashed its limit from 75% to 50% in February.
Virgin's policy will apply to all Decisions in Principle from 31 May 2012 and this will not affect existing customers.
The lender said using the sale of another property to repay an interest-only loan has been amended. The maximum Loan to Value (LTV) for this repayment vehicle is now 60%, bringing it into line with the maximum LTV permitted where sale of the mortgaged property is the designated repayment vehicle.
The revised policy applies to all new Decisions in Principle (DIPs) generated from 31 May 2012. All DIPs and pipeline applications which have been agreed prior to the new policy will be honoured.
Existing customers can port or remortgage and keep their existing interest-only loan as long as there are no material changes to the loan.