Interest Only Mortgages

All you need to know about Interest Only mortgages 

ONLY FOR USE BY MORTGAGE INTERMEDIARIES

We can help if your customer wants interest only on their residential mortgage for part or the full balance.

Minimum Income Requirements

Here’s a guide to the key eligibility criteria and the acceptable repayment vehicles. Also available to First Time Buyers.

Minimum Income Requirements:

  • Minimum sole income: £75,000.
  • Joint minimum income: £100,000.
  • For joint applications, eligibility criteria is met as long as one customer earns more than £75,000.

 

All income types in our Income and Packging hub can be considered.

Eligibility criteria

  • A maximum loan to value (LTV) of 75%.

  • A minimum interest only loan amount of £25,000.

  • The minimum age is 18 and the maximum age is up to their 70th birthday (or intended retirement age, whichever is lower). For joint applications the age of the eldest applicant should be used when calculating the term.  

  • Where there is any element of interest only the maximum term is 35 years (30 years if a loan is more than £500,000).

  • Minimum term: 3 years.

  • Debt consolidation can be considered. This is on the “Capital and Interest” element, where it is on Mixed Repayment (Part & Part). Debt consolidation cannot be on the “Interest Only” element of the loan.

  • Interest only is available for joint applications, where only one party is a UK National, has Permanent “Right to Reside”, Settled or pre-settled status or Irish Citizenship. Please see Foreign Nationals.

Acceptable repayment strategies (RPS)

Here’s a list of all of our acceptable RPS.  All repayment strategies must be in UK Sterling (GBP).

  • Sale of the main residence / mortgaged property.

  • Sale of other UK Property.

  • Investment Vehicles (within or outside ISA) Endowments Unit Trusts (EU Authorised) Open Ended Investment Companies (EU Authorised) Investment Company with Variable Capital (EU Authorised).

  • Stocks and Shares (Traded on an authorised exchange within or outside ISA).

  • Pension (UK authorised) 25% of current value.

  • Cash Savings.

 

Please note - it is acceptable to mix the above repayment strategies as the repayment vehicle except Sale of the main residence / mortgaged property.

 

Evidence required for sale of the main residence/mortgaged property

Evidence required for various RPS

Keeping us up to date

The customer needs to:

  • Keep us informed of any changes to their repayment strategy, which might affect their ability to repay the mortgage at the end of the term. Where they have concerns they can contact us.

  • We expect that as their broker, if you review your customers’ finances in the future, that you would review their repayment strategies and ensure the customer keeps us informed of any changes in their circumstances.

Risks associated with an interest only mortgage

  • The amount of the loan outstanding will not reduce over the period of their mortgage – so they’ll pay interest on the full sum borrowed throughout the term and be more exposed to interest rate changes.

  • There is a greater negative equity risk than a repayment mortgage, which means they could end up owing more than their property is worth.

Next steps

If you'd like further guidance on our other policies, please visit our lending criteria page.

Utilise our affordability calculators, to check our indication to lend for your customers.

If you believe your customer(s) may be struggling financially, find out how we can help here.