The change takes effect from Thursday 11th October.

A statement which went out to mortgage brokers read: “We will no longer offer interest-only mortgages for any new or additional borrowing.

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

There are no other changes to criteria or products.”

A spokesperson for Nationwide told Mortgage Solutions: “Nationwide has seen a sharp decline in lending on interest-only products in recent times and currently only 3% of our new lending is interest-only.

“This will not affect any existing customers as those already on interest-only will be able to continue on an interest-only basis, only existing borrowers seeking to increase their loan will be moved onto a repayment product.”

Andrew Montlake, director at Coreco Independent Mortgage Brokers said: “This is a massive step for Nationwide to take and it could well have a big effect on other lenders who have been monitoring this sector of the market closely.

“Whether this is the final nail in the coffin for mainstream interest only mortgages remains to be seen, although I do not think we will see the end of it totally. As with anything, when faced with potential new regulation or post-crises 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 before their eyes.”