Where to get an interest only mortgage?

Mark_d

My bills and general spending are as low as I can practically get them.  Due to medical diagnosis I want to see as much of the world as I can in the next few years.  However this requires a more disposable income than I currently have.

I have recently got a new job however the increase to my take-home pay is fairly small.  The only way I can think of increasing my disposable income is moving to an interest-only mortgage - but where do I get one with a low interest rate?

Lloyds Private Banking and Handelsbanken apparently offer interest-only mortgages but I can't find the rates.  I currently have a repayment mortgage with First Direct but an interest-only mortgage is no longer available to me with First Direct.
Does anyone know the best place to get interest only mortgages?  A mortgage broker could possibly do something but I prefer to be dealing directly with companies rather than going through an agent/middleman.

kingstreet

Lender rates are the same for interest only as they are for capital & interest so a five year fixed rate with no fee might be 4.75% regardless of the repayment method.

Where lenders do vary is on criteria with minimum income levels, minimum equity levels and so on. You'll need to look at each lender and establish if you meet criteria.

Here's Halifax as an example;-

https://www.halifax-intermediaries.co.uk/criteria.html

The maximum loan amount available on interest only is 75% loan to value (LTV) (or for sale of mortgaged property (SOMP) main residence 50%, 60% or 75% depending on the minimum equity requirement). On part interest only/part capital and interest repayment customers can borrow up to 85% LTV with the balance on capital and interest repayment.

All loans arranged where the capital element is not included in the monthly payment, including those that are part capital and interest repayment, part interest only, must have a plan in place to repay the capital at the end of the term. This includes new loans, further advances and product transfers.

As a responsible lender, it is important for us to see evidence of the repayment plan for interest only mortgages so documents relating to the repayment plan must be received before a new mortgage offer can be considered.

The repayment plan must cover the whole amount of interest only. This information is only a guide. A mortgage offer will only be issued once we have confirmed that the evidence supplied meets our criteria.

Bonus

There is a minimum income requirement for this repayment plan to be available:

• Sole applicant with an income of £75,000 or more
• Joint applicants where one applicant has an income of £75,000 or more, or where the combined income of both applicants is £100,000 or more. e.g. this could be £60k and £40k, therefore no applicant has an income of £75,000 or more but together their income is £100,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers.

The amount of this repayment vehicle which can be used is assessed by:

• An annual bonus figure is calculated from the payslips provided as evidence
• Where bonus is paid annually the average of the bonus received in the last 2 years is used
• 30% of this bonus figure is then multiplied by the term of the mortgage required for the amount of Interest Only lending available
• There is an expectation that the customer will make periodic lump sum repayments to reduce the amount outstanding during their Interest Only mortgage and it is important the customer understands this, however Early Repayment Charges would apply as normal where any overpayment concession is exceeded
• Where any Bonus is to be used as a repayment plan no bonus income earned by any customer will be used in the affordability assessment
• Lending Into Retirement - the term of any Interest Only lending must not exceed the lower of the Anticipated Retirement Age or Maximum Working Age of 70 where Bonus is being used as a Repayment Plan. The term can run up to 364 days past the lower of the ARA / MWA of 70.

Evidence of bonus income is required:

• If received monthly the latest 3 payslips. If received quarterly, the latest 4 bonus payslips
• If received half yearly then previous 2 payslips showing bonus payment
• If received annually then previous 2 years payslips showing bonus payment
• An average value should be calculated and used
• Bonus slip must show applicant & employer name, pay date and gross bonus amount.

Cash

There is a minimum income requirement for this repayment plan to be available:

• Sole applicant with an income of £75,000 or more
• Joint applicants where one applicant has an income of £75,000 or more, or where the combined income of both applicants is £100,000 or more. e.g. this could be £60k and £40k, therefore no applicant has an income of £75,000 or more but together their income is £100,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers.

The amount of this repayment vehicle which can be used is assessed by:

• Copy of statement dated within last month and a previous statement showing Cash amount held for a minimum of 3 consecutive months
• If a minimum £50,000 has been held in a savings or current account (£ sterling) for a minimum 3 consecutive months 100% of the current cash balance can be used to support Interest Only lending
• If the statements show a fluctuating cash balance then the lowest balance will be used
• If savings are also being used as source of deposit then evidence of an amount sufficient for both the repayment plan and deposit must be provided
• Lending Into Retirement – the term of any Interest Only lending must not exceed the Maximum Working Age of 70 where Cash is being used as a Repayment Plan.

Endowment

There is a minimum income requirement for this repayment plan to be available:

• Sole or joint applicants have a combined income of £50,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers.

The amount of this repayment vehicle which can be used is assessed by:

• Copy of latest projection statement dated within last 12 months
• Endowment companies will present three growth rates to a customer with the middle one (for example 6%) being the most likely projected outcome. We allow up to 100% of projected amount using the middle % figure.

Pension

There is a minimum income requirement for this repayment plan to be available:

• Sole or joint applicants have a combined income of £50,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers.

The amount of this repayment vehicle which can be used is assessed by:

• Copy of latest pension statement dated within the last 12 months
• The pension must have a minimum projected total fund value of £400,000 of which a maximum 15% of this amount will be used to support Interest Only lending
• Where a projected total fund value does not show on the pension statement e.g. on a final salary pension if the projected lump sum is at least £100,000 up to 60% of a projected lump sum value can be used
• Where a statement gives a range of projected values the middle of three figures or the lower of two would be used
• Pensions belonging to the same person can be combined to reach the £400,000 or £100,000 levels but pensions held by joint applicants cannot be combined to meet these levels
• Pension contributions should be collected under ‘Total monthly payment towards Investment Vehicles' and will be used within affordability calculations
• It is important the customer understands the need to maintain the pension contributions
• Lending Into Retirement - the term of any Interest Only lending must not exceed the lower of the Anticipated Retirement Age or Maximum Working Age of 70 where Pension is being used as a Repayment Plan. The term can run up to 364 days past the lower of the ARA / MWA of 70.

Sale of mortgaged property

There is a minimum income requirement for this repayment plan to be available:

• Sole applicant with an income of £75,000 or more
• Joint applicants where one applicant has an income of £75,000 or more, or where the combined income of both applicants is £100,000 or more. e.g. this could be £60k and £40k, therefore no applicant has an income of £75,000 or more but together their income is £100,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers

There is a minimum credit score requirement for this repayment plan to be available. If applications do not meet this an alternative repayment plan would need to be selected.

The amount of this repayment vehicle which can be used is assessed by:

• The equity amount available in the property being mortgaged can be used to support Interest Only lending
• This will be calculated using the valuation/property assessment carried out as part of the application and any existing or new additional borrowing elsewhere to be secured against the property must be declared and will reduce the equity amount available
• If the property is to be a main residence there must be a minimum equity amount available. The equity amount is calculated as the property value minus interest only amount:
• Up to 50% interest only the minimum equity requirement will be £300,000
• For >50%-60% the minimum equity will be £500,000
• For >60%-75% the minimum equity will be £750,000
• For part Interest Only / part capital and interest repayment lending the minimum equity will be calculated at the end of the mortgage term, not at point of application.
• The maximum Loan To Value (LTV) on Interest Only is 75%; part interest only / part capital and interest repayment is available with the balance above the SOMP interest only amount, up to a maximum 85% LTV, on a capital and interest repayment basis.
• The term on any Capital & Interest Repayment element cannot exceed the term on Interest Only
• If the property is on the ‘second home' scheme the minimum equity requirement does not apply and a maximum LTV of 75% can be on Interest Only
• It is important the customer understands the requirement to sell their property at the end of the term to repay the Interest Only loan amount
• Lending Into Retirement – the term of any Interest Only lending must not exceed the Maximum Working Age of 70 where Sale of Mortgage Property is being used as a Repayment Plan (except where property is ‘second home' where a longer term may be considered).

Sale of other residential property

There is a minimum income requirement for this repayment plan to be available:

• Sole or joint applicants have a combined income of £50,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers.

The amount of this repayment vehicle which can be used is assessed by:

• Due to valuation and verification requirements this is restricted to properties within the UK
• Completed interest only - other residential property form and, if the mortgage lender is outside Lloyds Banking Group, a copy of the latest mortgage statement dated within last 12 months
• We will check the ownership of the other residential property and assess its value using an automated valuation (AVM). (Ownership of the other residential property must be in the same name as the applicants)
• We will compare the equity available in the property with the amount of interest only lending required
• Current equity within the property must be over £50,000
• We will use 80% of the current equity value of the property to support interest only lending
• If the valuation fails to sufficiently value the other property the customer could obtain a full valuation of the property (at their own cost) using a RICS certified surveyor
• Please note that there is a minimum greater than £50,000 equity requirement for each individual property being used to support Interest Only lending
• If the property is not already purchased, evidence required will also include; property details, Acting Solicitor to confirm intended ownership of the second property, details of any loans to be secured against this property (property valuation and land registry search carried out by us if needed). We will confirm the intended ownership of the second property prior to offer on the new mortgage / further advance.

Stocks and Shares (including ISA) and other investments

There is a minimum income requirement for this repayment plan to be available:

• Sole or joint applicants have a combined income of £50,000 or more
• The income requirement is calculated on the total of Basic, Overtime, Bonus and Commission for employed applicants or the latest year's income for self-employed customers.

The amount of this repayment vehicle which can be used is assessed by:

• Only UK based investments quoted within the FTSE index held in sterling are acceptable
• Unit trusts / Open Ended Investment Companies / Investment Bonds (UK) allowed
• Copy of share certificates, nominee account statement or confirmation from a recognised stock broker containing evidence of share holdings together with their valuation
• Copy of latest ISA statement dated within last 12 months
• The amount of interest only cover available will be 80% of the current value of the investment which must be greater than £50,000
• The total can be made up of a combination of Stocks and Shares ISA, Unit Trusts, Investment Bonds and Stocks and Shares.

Important points on the assessment:

• We are not providing advice on your customer's repayment plan(s) or making any guarantee that their plan(s) will be sufficient to repay the outstanding balance (capital) at the end of the mortgage term.
• Your customer should review their plan(s) regularly during the term of their mortgage to make sure it is on track to repay the outstanding balance.
• Periodically, we will ask your customer to provide evidence of their repayment plan(s). If your customer is unable to satisfy us that their repayment plan(s) remains on track to repay the outstanding balance on their mortgage, we may ask your customer to transfer some or all of their mortgage onto a capital and interest repayment basis.
• Please remember it is your customer's responsibility to ensure they have sufficient funds to repay their outstanding balance at the end of the mortgage term. If they are unable to do so, their home may be repossessed to repay the outstanding balance.

Important points on repayment plans:

• Repayment plans CANNOT be accepted if they include the name of anyone NOT named on the mortgage.
• Your customer can use more than one repayment plan to cover their total interest only amount. In this case, please send the relevant evidence for all repayment plans.
• The following are NOT acceptable repayment plans:
• Sale of other commercial property.
• Sale of non property assets.
• Inheritance.
• Maturity dates will be requested for each applicable repayment plan
• The mortgage term must finish before a maximum age of 70 years rather than 80 years for repayment mortgages. For pension and bonus repayment plan types the maximum term would be restricted further if there was a lower anticipated retirement age.

Only repayment vehicles for those customers intending to live at the mortgaged property may be used to support the loan. E.G. if a parent is named on the mortgage to help with affordability then a property in the parents name cannot be accepted as a repayment vehicle.

Mark_d

Thanks you @kingstreet .  That's helpful.

I note that you linked a page from Halifax Intermediaries.  Does that mean the mortgage products are only available through a broker?

born_again

You might be better going through a broker anyway, as they will have access to far more of the market & know lenders who will offer what you require.

Pezza4u

I have an interest only mortgage with Santander and got it directly from them after my 5 year repayment fix ended.

They let me change to that as I'm planning on selling the house and moving to a cheaper area in a few years. All they did was have a quick look on rightmove while I was on the phone to see if it was achievable and then they approved it. I do have a lot of equity in the house to do it though so it might depend on how big you mortgage is.

Is the mortgage charter still available, can you change to interest only for 6 months to start with?