Can I get an interest only mortgage with this much debt?

2025mse

Hi everyone,

I’m looking for some advice on an upcoming remortgage (Sep 2027) and whether my profile fits current Interest Only (IO) criteria.

The Financials:

• Property Value: £450,000
• Current Mortgage at renewal: £205,000
• New Total Loan Required: £225,000 (£20k capital raising)
• LTV: 50%
• Repayment Strategy: Combined Sale of Property / Pension Lump Sum
• Pension Value: £300,000 (SIPP/Personal)

The Applicants:

• Applicant 1: Ltd Co Director (Age 42)
  • 26/27 PAYE + Div: £35k
  • 25/26 PAYE + Div: £30k
• Applicant 2: PAYE (Age 42)
  • Salary: £22k
  • Child Benefit: £2.3k
• Total Household Income: £56,800

The Debt:

• Current Debt: ~£17,000 on 0% credit cards.
• Question: Should I convert this to a personal loan (approx. 5.6% over 7 years) 9 months before applying to help the affordability "stress test," or are lenders generally okay with 0% credit card debt at this LTV?

My Questions:

1. Repayment Strategy: With £225k equity and a £300k pension, am I a strong candidate for 100% Interest Only? I’ve noticed some lenders (like Yorkshire BS) have a £250k minimum equity rule for "Sale of Property"—will the pension pot help bridge that gap?
2. Lender Recommendations: I've been looking at Cumberland and Yorkshire, but are there other lenders known for being "Director friendly" and flexible on the £250k equity floor if a large pension is present?
3. Capital Raising: To keep the IO option open, should I strictly categorise the £20k extra borrowing as "Home Improvements" rather than "Debt Consolidation"?

Thanks in advance!

ACG

1 - Should be possible.

2 - You dont need a director friendly lender. Your income is consistent. Your income however is not enough for many lenders on interest only, so that will be the hardest part to overcome. But should be possible.

3 - You declare the £20k as whatever it is. No point in risking mortgage fraud.

2025mse

Thanks for your response.

I actually hid the most important question not under the questions heading. Is it worthwhile moving the credit card debt to a loan.

Q3) purpose of advance could be open to interpretation. A family member has offered to put the money up for a new kitchen. So that money could fund the kitchen or the debt repayment. I had floated the idea they pay the credit card debt in advance but they want to pay for something tangible. So it’s possible I’d be defrauding the family member later by using their funds to pay the debt and then fund the kitchen with the advance. Just wondering which is more likely to approved, if it could be presented in a way which isn’t fraudulent.

ACG

I dont think it matters too much.

Debt consolidation is generally deemed worse than home improvements. But your debt isnt too bad. Ive seen a lot higher.

freesha

I don't think many IO mortgages are wise. What's your plan for repaying the capital?

2025mse

https://forums.moneysavingexpert.com/discussion/comment/81880524#Comment_81880524

If I key my details into the Halifax How Much Can I Borrow I get the below results (other calculators similar too).

• £17,000 credit card - You could borrow up to £209,120 over a term of 28 years.
• £300 loan repayment - You could borrow up to £284,000 over a term of 28 years.

Does it not open up the options to more lenders / cheaper rates or does it not work like that?

2025mse

https://forums.moneysavingexpert.com/discussion/comment/81881462#Comment_81881462

Inheritance

Potential inheritance, while I understand this cannot be factored into a formal mortgage application, there is a high likelihood of inheritance from three separate estates (allproperty-backed). This would likely be enough to clear the mortgagemultiple times over.

Pension / ISA

Pension Tax-Free Lump Sum (TFLS). Currently have pension pots valued at £300,000. Assuming no further contributions the value could be £1,176,000 (5%),£1,533,000 (6%) , £1,994,000 (7%) at stated retirement age or I guess 50p but I’d probably have bigger issues. The plan would be to add the saving between capital repaymen tand interest only to our existing contributions or/and add to ISA. Also possible the TFLS is abolished or reduced, £100,000 each is workable but full removal would hurt.

Downsize

There would be a reasonable chunk of equity inthe property. At the end of the term, assuming the above has failed we could downsize.

Or a mixture of the above.

ACG

Ah ok.

So it might affect affordability in how it is structured. For credit cards, lenders typically use 3% of the balance as the repayments. With loans they use the actual repayments. So yes, from an affordability perspective it can affect things. This can have a knock on effect for the products but generally only in the sense of whether you have to tie in on a 5 year fix or not.

But in terms of being accepted a mortgage it should be fine regardless.