Interest Only Mortgages
We will only permit lending on an interest only basis if there is a credible plan for repayment of the capital sum at the end of the mortgage term.
Basic Criteria
All requests on owner-occupier mortgages for lending on an interest only basis, either at inception or during the term of the mortgage, must meet the following criteria:
- Maximum Loan to Value Ratio: 75%
- Maximum Loan Size: £350,000
Acceptable Repayment Vehicle
- Endowment policies, where the projected growth rate at 4% will generate sufficient to repay the mortgage borrowing. Any shortfall in projected growth is currently placed on a capital repayment basis. A copy of the latest projection statement dated within the last 12 months should be provided.
- Stocks & shares ISAs are acceptable as long as we receive a letter from the ISA provider, stating that the projected value at maturity is sufficient to allow full repayment of the mortgage.
- Pension lump sums are acceptable provided the projected lump sum at 4% growth is sufficient to repay the mortgage in full. The lump sum may also be used for borrowers with a final salary scheme and/or pensions can be combined. A copy of the latest projection statement dated within the last 12 months should be provided.
- Second/Investment properties are acceptable provided the following rule is used:
- For mortgages maturing in > 5 years, the current equity in the second property must be sufficient to repay the mortgage.
- For mortgages maturing within 5 years, the current equity in the property must be no less than 120% of the mortgage.
Full details of the property should be provided including confirmation of ownership and evidence of the amount of any outstanding mortgage debt. A recent valuation report or AVM report should be obtained to provide comfort in respect of the property value.
Any monthly contribution in respect of these repayment vehicles must be included in the affordability calculation.
Speak to your BDM to discuss other ways to repay the mortgage that aren’t noted above.
For interest only loans, sale of security property will be considered subject to the following:
- The maximum LTV shall be 50% where the borrower wholly wishes to use sale of property as the repayment vehicle. 75% LTV would be available where 25% borrowing is on a repayment basis. Thereby reducing to 50% by the end of the term.
- The minimum term shall be 10 years.
- The term must not exceed age 70.
- The minimum equity in the property is to be £200,000 (This means where a borrower exercises the full 50% LTV the minimum property value would be £400,000 but would still enable a borrower looking for £100,000 on £300,000 to access interest only).
- The maximum loan shall be £500,000 where sale of mortgaged property is the repayment vehicle.
FOR INTERMEDIARY USE ONLY