Virgin Money has reduced its maximum loan-to-value for interest-only mortgages from 75 per cent to 70 per cent.
The revised policy applies to all decisions in principle generated from May 31.
There is no impact on existing customers with interest-only loans.
All pipeline applications which have been agreed prior to the new policy will be honoured.
Borrowers wishing to use the sale of another property to repay an interest-only loan will only be able to borrow up to 60 per cent of the property’s value.
Existing customers wishing to port their mortgage to a new property are able to do so, providing there are no changes to the loan size or the term length.
In the past two months, lenders including Santander, ING Direct, Leeds Building Society, Nationwide Building Society and Coventry Building Society have all cut their maximum LTVs from 75 per cent to 50 per cent while Skipton Building Society has cut its maximum LTV from 75 per cent to 60 per cent and The Co-operative Bank has pulled out of this type of lending altogether.
Earlier this month, the FSA revealed a number of lenders have asked it to ban interest-only lending as part of the mortgage market review.
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FOREX-Euro heads for biggest drop in 8 mths on pains in Spain - Reuters
* Worries growing that Spain needs external help
* Euro/yen edges nears 11-year low hit in January
* Dollar/yen hits 3-1/2 month low, Aussie/yen at 6-mth low
* US bond yield at 60-yr low, undermining dlr/yen
TOKYO, May 31 (Reuters) - The euro was poised for its biggest drop in at least eight months as the increasing likelihood of Spain needing outside assistance to fix its public finance and banking system led to a major escalation in the perennial crisis in the currency bloc.
Spanish government bond yields surged to a six-month high while German bond yields fell to record lows, pushing the spread between the two to a new high and adding stress to markets already frayed by anxiety that Greece may leave the euro zone.
"Things are starting to look ugly. It seems like the market is making Spain its next target after Greece," said Teppei Ino, currency analyst at Bank of Tokyo-Mitsubishi UFJ.
The euro fell to as low as $1.2358, a level last seen in mid-2010, when it had bottomed at $1.1876. It last stood at $1.2388, having dropped 6.4 percent this month, the biggest since September.
Against the yen, the common currency fell as low as 97.352 yen, edging near an 11-year low of 97.04 yen hit in January, with many traders now considering a break of that low as highly likely.
The euro's fall was driven by concerns that Spain, with an economy bigger than that of Greece, Portugal and Ireland combined, will probably need assistance as its fragile economy and ailing banking sector make it impossible to cut its deficit.
So far, though, Madrid has ruled out seeking Europe's help for its banks, while EU paymaster Germany has firmly opposed any collective European banking resolution and guarantee system.
"There are a huge amount of flight-to-quality moves right now. Only a policy coordination in Europe can stop this but markets can't find it now," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
"Until we see that, people will do trades that will minimise losses rather than make profits," Sera added.
PREPARE FOR WORST
Spain is by no means the only concern for investors, with markets rattled by Greek polls showing parties for and against a bailout are neck-and-neck ahead of the country's second election on June 17.
Italian debt yield also rose above 6 percent for the first time since May, while traders also warily look at whether the Irish will support Europe's new fiscal treaty as expected in a referendum on Thursday.
With investors trying to escape the euro zone and to hoard liquid assets, the dollar's index against a basket of currencies rose to 20-month high of 83.11. It looks set to end above its 100-month average for the first time in almost ten years.
In the past, a break of the 100-month average has been a good indicator of a long-term trend change, having produced four successful signals in the past 30 years.
"Everyone, from banks to companies, is now trying to prepare themselves to make sure they can get funding when they need money," said Hideki Amikura, forex manager at Nomura Trust Bank.
"Wherever you look, you can't find reason to expect a reversal in this. I cannot help thinking that the euro will fall below $1.20."
The dollar fell to as low as 78.71 yen, the lowest in 3-1/2 months, as investors favoured the yen, the currency of the world's largest creditor nation despite its mountain of public debt.
A fall in U.S. bond yields also helped to push down the dollar against the yen, as the currency pair is known to have a strong correlation with the yield gap between the two countries.
The 10-year U.S. bond yield fell below 1.6 percent , not seen at least for six decades and cutting the yield advantage over JGBs to near the lowest level in recent decades.
The dollar has crucial support for now from its 200-day moving average at 78.63 yen.
The Australian dollar fell 0.3 percent to a six-month low of $0.9673, after having fallen 1.3 percent on sharp decline in oil and commodities prices on Wednesday.
Selling by Japanese accounts against the yen was also a driver in its fall, with the Aussie/yen falling to a six-month low of 76.26 yen.
Highlighting the impact of the gloomy global economic outlook on commodities exporters and emerging markets, Brazil cut interest rates to a record low of 8.50 percent.
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