By Laura Brady

First-time buyers could be forgiven for being a little over- optimistic when trying to get a foot on the housing ladder.

But those applying for a cheap interest-only mortgage who don't have a savings plan in place to pay off the capital in 25 years' time could run into trouble.

Ten days ago, Nationwide tightened its lending policy to ensure that applicants for mortgages make proper provision to cover the capital sum in the future. It insists they must now include full details of the repayment vehicle chosen to pay off the loan, one that should generate a large enough sum in the years to come.

Savings linked to an interest-only mortgage will typically be held in an individual savings account (ISA) or an existing personal equity plan (PEP). But even a tax-free cash chunk of your pension could suffice.

'If the details don't appear on the application, or the figures don't stack up, we can't issue a mortgage offer,' says Nationwide's spokeswoman, Tamsin Hemsley.

It says this policy is a response to regulatory changes ushered in last year by the Financial Services Authority (FSA). The new rules insist lenders must ask the borrower for 'evidence of intent' that the property's capital value will be paid off in the future.

But other lenders aren't so specific in setting out their lending criteria.

'Most lenders don't ask for proof of savings " and some don't even discuss repayment plans,' says Melanie Bien of Savills Private Finance broker.

Nationwide's new rules mean you won't qualify for an interest- only loan if you plan on paying off the capital by relying on an inheritance, or on hopes of a future pay rise.

If you intend to save via bonuses invested in an ISA instead of making regular deposits, you may be required to show Nationwide some proof from your employer that a bonus system is in place.

If you're relying on selling the property in the future in order to pay off the capital, you won't qualify unless you already own a house with pounds 150,000 worth of equity in it, and the mortgage you are applying for is less than 66 per cent loan-to-value. This, in effect, rules out first- time buyers.