Changing NatWest repayment to interest-only during fixed term

Westminster

Hello,

Does anyone have any experience of NatWest's approach to changing from repayment to interest-only during the term of a fixed-rate for investment purposes rather than Cost of Living?

Our current 1.39% runs till July 2026 and the mortgage has 23.5 years still to run with a balance of £270k and an online valuation on the NatWest site of £570k - so 47% LTV.

I can evidence a long track-record of savings / investments (currently £3k per month salary sacrifice and have put the full 20k into ISAs for the past 4 years.

We are embarking on BTL's (we have 2 off plans due for completion end of next year) and would like to continue in this direction in addition to pensions / ISAs

If they do consider switching, does that impact the fixed rate and does the above sound like a reasonable repayment plan track record?

Brie

I have no experience of doing this but would assume that this means remortgaging so no guarantee of getting the same long term of 23+ years and certainly no possibility of getting such a low interest rate.  So while you might currently be paying about £300 a month in interest at 6% this would become £1300 (rough calcs).  I can't imagine that's a positive step for you.

Can you actually afford to do the BTLs if the mortgage costs increase so significantly?

housebuyer143

Westminster said:

Hello,

Does anyone have any experience of NatWest's approach to changing from repayment to interest-only during the term of a fixed-rate for investment purposes rather than Cost of Living?

Our current 1.39% runs till July 2026 and the mortgage has 23.5 years still to run with a balance of £270k and an online valuation on the NatWest site of £570k - so 47% LTV.

I can evidence a long track-record of savings / investments (currently £3k per month salary sacrifice and have put the full 20k into ISAs for the past 4 years.

We are embarking on BTL's (we have 2 off plans due for completion end of next year) and would like to continue in this direction in addition to pensions / ISAs

If they do consider switching, does that impact the fixed rate and does the above sound like a reasonable repayment plan track record?

This is their interest only criteria. Do you meet it? If not then they will not let you have it. 
You will also need an acceptable repayment strategy that is normally a pension, etc.

Even if you qualify I would be surprised if they let you keep your current product.

Westminster

This was my main issue and something I have no prior experience - whether making a change like this is effectively a remortgage or a modification of the existing product. If a rate change is triggered then I don’t see any point in changing from what is a nice rate. 

Regarding the BTL, our calculations for the LTD Company Stress Test: Based on 130% coverage and 6% stress testing rate, rent needs to be £795

Similar properties in the area are recently let agreed at £1250 so I’m relatively confident - especially given the location / build quality / services provided in this development that we can attract tenants who can afford this level. 

housebuyer143

Westminster said:

This was my main issue and something I have no prior experience - whether making a change like this is effectively a remortgage or a modification of the existing product. If a rate change is triggered then I don’t see any point in changing from what is a nice rate. 

Regarding the BTL, our calculations for the LTD Company Stress Test: Based on 130% coverage and 6% stress testing rate, rent needs to be £795

Similar properties in the area are recently let agreed at £1250 so I’m relatively confident - especially given the location / build quality / services provided in this development that we can attract tenants who can afford this level. 

NatWest have an ICR of 125% for ltd co lending and the max loan you can get on a rent of £1250 is below. You didn't state the property values so not sure if these fits? Lots of landlords are struggling getting the loan values they need with the rents thru can charge. 

If you meet the interest only criteria with an acceptable repayment strategy then it doesn't hurry to ask about the rate. 

The only way a £795 rent fits is if you are borrowing £110k max.

https://mortgages.natwest.com/Intermediary/SmallLandlordRemoL4L

Westminster

For clarity - it’s my residential mortgage I’m looking to change. We don’t have any BTL mortgages yet as our properties are not due for completion till Q4 2024

We do appear to meet all of the IO criteria (current pension and ISAs are around £380k and gross household income is approx £180k)

housebuyer143

Westminster said:

For clarity - it’s my residential mortgage I’m looking to change. We don’t have any BTL mortgages yet as our properties are not due for completion till Q4 2024

We do appear to meet all of the IO criteria (current pension and ISAs are around £380k and gross household income is approx £180k)

Definitely give them a call then and ask as they are really the only ones that can confirm if you can keep the rate 👍 

Just thought it was worth mentioning on the BTL front regarding max loans. It's a hard market at the moment BTL with the increased rates.

Westminster

Agreed - it’s certainly a valid consideration and the main reason we didn’t do any more deals yet incase we need to put more than 25% in to the two we have already booked. 

The mortgage team at NatWest open tomorrow so will be interesting to see what they say. 

simon_or

I'm going through the exact same process for a residential mortgage on one of my properties, but with Halifax.

I'm using equity in my BTLs as the repayment plan for the interest only component. Halifax takes 80% of that into account.

They will allow me to keep the exact same product, all that happens is that it changes to interest only.

I have a great broker but unfortunately, she can't help as this needs to go through the bank mortgage adviser which has (so far) been painful. A incredibly snail paced 2 hour interview, the adviser not knowing their own interest only policy (thankfully my broker had sent me the link with details) and them calling me up again and again for more details that they missed out on the 2 hour long call!

Essentially it's just like a full mortgage application, with the only difference being that I get to stay on the same low rate I'm on now until the end of the fix. So as long as I meet the interest-only criteria and affordability, it's straightforward, in theory.

I've finished the interview, answered all the follow up questions, submitted all the docs they asked for and now waiting for someone to look at it.

I don't know about Nat West but I guess the process will be similar for all the big banks. 🤞 it goes smoothly for you.

Westminster

Wow what a pain - fingers crossed all the effort is worth it for you. 

Westminster

Turns out that NatWest have the same approach as Halifax - you can change to IO (assuming you meet the criteria) and remain on your current fixed rate. Seems like a no-brainer.

I'm waiting to find out how painful the process to apply will be ;-)