Interest Only Mortgage with Natwest/RBS

14sprocket

Hi there,
Does anyone have an experience applying for the interest only mortgage with RBS or Natwest?
The website says that the application can't be made online, as you have to call in and go through the interview process (?)...
What does this process entail? I never had the IO mortgage before, but now seems like the right time, both from the interest rates and my personal situation. Should I be prepared to provide any additional documentation? I'm looking at 75% LTV and expect the interest rate to be the same as the repayment mortgage from the same provider.
Thanks!

K_S

@14sprocket
- the process overall is the same as if you were getting a repayment mortgage. The bank advisor will take you through the advice process, check whether you meet criteria and whether it's appropriate for you

- I/O residential mortgages are far harder to qualify for than repayment ones. Very generally speaking the main stumbling blocks are minimum income (it's 75k single or 100k joint for NatWest I think) and an adequate strategy to repay the mortgage at the end of the term that is acceptable to the lender.

- With most lenders, you'll need to meet affordablity on a repayment basis, to qualify for an I/O resi mortgage.

- if you qualify for I/O, it's the same product 

Out of interest, is there a particular reason you're only looking at NatWest? Provided you tick the boxes there are plenty of mainstream lenders offering I/O resi products with different qualifying conditions.

14sprocket

K_S said:

@14sprocket
- the process overall is the same as if you were getting a repayment mortgage. The bank advisor will take you through the advice process, check whether you meet criteria and whether it's appropriate for you

- I/O residential mortgages are far harder to qualify for than repayment ones. Very generally speaking the main stumbling blocks are minimum income (it's 75k single or 100k joint for NatWest I think) and an adequate strategy to repay the mortgage at the end of the term that is acceptable to the lender.

- With most lenders, you'll need to meet affordablity on a repayment basis, to qualify for an I/O resi mortgage.

- if you qualify for I/O, it's the same product 

Out of interest, is there a particular reason you're only looking at NatWest? Provided you tick the boxes there are plenty of mainstream lenders offering I/O resi products with different qualifying conditions.

Thank you for your detailed response.
To be clear, I'm not wedded to RBS/NatWest, it's just when I did the search for best rates on an aggregator site their rates came out as most competitive, plus I generally still hold them in high regard as lenders. I'm sure there're others out there, plus the rates fluctuate day by day.

Could you elaborate on what is deemed to be an "adequate" strategy for repayment? The bulk (c.2/3rds) of my annual income is paid via bonus, so my plan is to save up, invest via low risk financial products (bond funds), leveraging ISA and SIPP whenever I can, and build up a nest egg sufficient to repay the mortgage at the end.

More specifically, my primary plan is to take the mortgage with the 5yr initial term, save up in the meantime, and, once the 5yr term is up in 2026, pay down a big chunk of it and see what's on the market at the time - may be extend the same strategy for another 2-5 years, or perhaps switch to a regular mortgage.

Does that make sense? Do I need to provide these details during the application process or will they look at the repayment strategy over the whole 25yr term?
Thanks again

[Deleted User]

https://www.intermediary.natwest.com/content/dam/natwest_com/Intermediary/PDFs/20201130InterestOnlyGuideSRV01.00.pdf

Do you have any investments at thr moment that can evidence you being on a certain trajectory?   When dealing with investments lenders dont generally like you going from a standing start. 

 Natwest criteria isnt as clear cut as others (other lenders for instance say that investments have to be in place for minimum of 12 months for example) so you might be able to send in a plan and see how they react

There are lenders that allow a future planned lump sum from bonuses to be the repayment vehicle even kf you haven't got anything in place just now. I dont think natwest are one of them though 

14sprocket

Deleted_User said:

https://www.intermediary.natwest.com/content/dam/natwest_com/Intermediary/PDFs/20201130InterestOnlyGuideSRV01.00.pdf

Do you have any investments at thr moment that can evidence you being on a certain trajectory?   When dealing with investments lenders dont generally like you going from a standing start. 

 Natwest criteria isnt as clear cut as others (other lenders for instance say that investments have to be in place for minimum of 12 months for example) so you might be able to send in a plan and see how they react

There are lenders that allow a future planned lump sum from bonuses to be the repayment vehicle even kf you haven't got anything in place just now. I dont think natwest are one of them though 

I'm not a HNW, but I have another small property, plus a pensions savings account, plus ISA plus brokerage account where I own some funds. Most holdings from ISA and brokerage account will need to be liquidated to build a mortgage deposit, but the property will count for some 25% of the amount we're looking to borrow (we own it outright and are renting out for income). Wil that count for something?

K_S

@14sprocket There might be more in the background that isn't evident, but based on the limited info in your post, it's unlikely the repayment vehicles described above will be deemed adequate for an I/O resi mortgage from a mainstream lender. You could perhaps consider a part-and-part (eg: 50% on I/O and 25% on capital repayment) as that may bring in a few lenders who may consider 'sale of the property being purchased' as an acceptable repayment strategy subject to qualifying criteria. I hope that makes sense.

14sprocket

@K_S @Deleted_User
Thanks both, you certainly sound like you know your onions.
One final question please - are major lenders now back to counting annual bonus toward one's annual income at full value? I was told that at the height of COVID pandemic some lenders didn't count bonuses at all, and some included only 50% of 2-year average.
Is it back to normal, i.e. taking full income for the year w/o treating fixed and bonus parts separately? Cheers

K_S

@14sprocket Depends on the lender, but generally speaking as long as you can show a consistent 2 year track record and the corresponding P60/s, there are mainstream lenders who may consider 100%.

If only one year or the amounts vary significantly, then they may dial it down to 50/60%. On the whole, it's definitely a whole lot better than it was 6 months ago though not back to the pre-covid era yet.

[Deleted User]

Also as an extra point, if you are saying you are going to be using the bonus as the repayment vehicle for an IO loan then you might find them reluctant to also then use it for affordability. Otherwise they are using the same money twice

14sprocket

@K_S @Deleted_User
What lenders would you say would currently issue a mortgage against 100% of the bonus in P60? Presuming stable earning over last 3 years

K_S

@14sprocket Thinking of larger lenders that may consider bonus income at 100%, nothing besides Kensington comes to mind.

But, criteria re variable income is ever changing in the post-covid era so I might well be out of date. The last couple of clients I used bonus income for were at 60% with a mainstream lender.