Previously the lender accepted interest-only applications up to 75% LTV.
A spokesperson for Abbey for Intermediaries said: “We constantly review our offering to ensure it best meets the needs of our customers and following a review of our interest-only criteria, we have taken the decision to reduce the maximum LTV on our residential interest-only mortgages.
"For new applications with any amount taken on an interest-only basis, the maximum LTV for the overall loan will now be 50% LTV.
"This will encourage borrowers with less equity in their properties to choose a capital repayment mortgage and ensure that the capital is being paid off in full over the term of the mortgage.
“We believe this decision is a prudent one that best meets the needs of borrowers in today’s market conditions.
"Additionally we assess all mortgage applicants’ affordability on a capital and interest repayment basis, irrespective of their repayment method preference.
"Therefore this change in policy will not result in a decline that would previously have been an accept, but it will remove the option to pay interest-only for all accepted applicants above 50% LTV.”
Stephen Smith, director of external and housing affairs at Legal & General, said: “This move by the current largest lender illustrates the fact that in this market lenders can pick and choose the mortgage business they decide to take on.
"In a competitive market however, if there is demand for the type of lending which has been withdrawn other suppliers will enter at an appropriate price for the risk and will take up the business.
"This may not be immediate but it is likely to happen over time.
"We hope that other lenders will pause, think and examine the performance of their own interest-only lending portfolios before responding to this move."
In its most recent Mortgage Market Review paper the Financial Services Authority has indicated that interest-only lending is still a valid strategy for informed consumers with a credible repayment strategy.
"We certainly support that position,” Smith added.
