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Residential Interest-only

We now offer a residential Interest-only mortgage which gives customers a choice of how to repay their mortgage.

Interest-only mortgages are subject to a customer having a suitable repayment plan to pay off the mortgage balance at or before the end of their mortgage term.

How does an Interest-only mortgage work?

The customer only pays interest charged on the loan. The outstanding capital balance will not reduce during the term of the mortgage.

The full mortgage balance will need to be paid by the end of the agreed term so it is important that you and your customer plan how they will repay the outstanding balance, by having a suitable repayment plan or plans.

Customers should regularly review their repayment plans to ensure they remain on track to provide sufficient funds to repay their mortgage in full at the end of the term.

If the customer’s Interest-only mortgage is accepted, we will help customers ensure that their repayment plans are on track by:

  • Writing to them periodically during their mortgage term to remind them of the support available and to regularly review their repayment vehicle(s). We should be advised of any potential shortfall as early as possible.

To be eligible for an Interest-only mortgage we will need:

  • A suitable repayment s vehicle(s) in place to pay off the outstanding mortgage balance by the time the mortgage ends
  • Evidence of a suitable repayment vehicle(s) submitted at the application stage
  • A signed Declaration confirming the repayment vehicle(s)

Multiple repayment strategies are acceptable, subject to the guidance held within the acceptable repayment strategies. As part of the process the main repayment vehicle is to be input into the system, subsequent evidence (if, applicable) and declaration for all vehicles is to be provided as part of the mortgage application process.

Repayment Vehicles

Repayment Plan Type

Endowment policies (purchased in UK) Must be administered by an FCA regulated financial services firm with ‘authorised’ status

Evidence required

Copy of latest projection statement dated within last 12 months

Validation check

  1. Evidence must be from the last 12 month and statement shows payments are up to date. The middle (amber) projection would be used
  2. The middle value evidenced must cover the interest-only element or combination of repayment strategies
  3. Endowment must be in the applicant(s) names only

Repayment Plan Type

Savings (UK). Must be administered by an FCA regulated financial services firm with ‘authorised’ status.

Evidence required

  • Copy of latest statement and must have been held for a minimum of 12 months and cover the interest-only amount.
  • Savings to cover interest-only element not form part of the deposit funds
  • The investment must be in Great British Pounds / UK Sterling Only and must be administered by an FCA regulated financial services firm with ‘authorised’ status.

Validation check

  1. Must have been held for a minimum of 12 months
  2. The investment must be in Great British Pounds / UK Sterling Only
  3. The value evidenced must cover the interest-only element or combination of repayment strategies
  4. Savings must be in the applicant(s) names only

Repayment Plan Type

Investment plans (Professionally managed) - (including Unit trusts / Open Ended Investment Companies (UK), Investment Bonds (UK), Stocks and Shares ISA (All stocks and shares held in a Stocks and Shares ISA. The investment and return must be in Great British Pounds / UK Sterling Only) Must be administered by an FCA regulated financial services firm with ‘authorised’ status

Evidence required

Managed investment plans latest statement issued by the administering company within the last 12 months Investment portfolio (Unit trusts, open ended investment companies (UK), investment bonds (UK) and stock and shares ISA): value based on current cash value

Validation check

  1. Latest statement issued by the administering company within the last 12 months confirming current value
  2. The cash value evidence to cover the interest-only element or combination of repayment strategies
  3. Investments must be in the applicant(s) names only

Repayment Plan Type

Share Portfolio. Must be administered by an FCA regulated financial services firm with ‘authorised’ status.

Evidence required

Managed Share Portfolio Account statement or confirmation from an authorised stock broker containing evidence of shareholdings together with their current valuation (must be dated within the last 12 months)

Validation check

  1. Latest account statement or details from authorised stock broker confirming current valuation issued within the last 12 months confirming current value
  2. The cash value evidence to cover the interest-only element or combination of repayment strategies
  3. Share portfolio must be in the applicant(s) names only

Repayment Plan Type

Pension - Defined contribution scheme or Pension - Defined Benefit schemes (Final Salary)

Evidence required

  • Defined contribution scheme and/or defined benefit schemes (Final Salary) from the pension provider must be evidenced and within the last 12 months.
  • Projected tax free cash sum or where lump sum not confirmed up to 25% of the projected total fund value can be used.
  • Customers should be made aware that this will reduce their income at retirement.
  • Pension lump sum tax free cash can be used where the pension/retirement age is the same as or earlier than the end of the mortgage term

Validation check

  1. Evidence from the pension provider in the last 12 months of the pension to be utilised to repay the mortgage
  2. Following evidence from utilising the projected funds available at retirement, check term, retirement age is the same as or earlier than the end of the mortgage term and it meets criteria
  3. Lump sum evidenced by: Confirmation of the tax free lump sum amount at retirement or if lump sum not confirmed take 25% estimated pot at retirement
  4. If evidence supplied shows a number of growth rates we can only accept the lowest figure
  5. The lump sum evidence to cover the interest-only element or combination of repayment strategies

Repayment Plan Type

Sale of second (UK) property (including Buy to let)

Evidence required

  • Current equity value in the property should cover 100% of mortgage capital balance due.
  • Customers should be made aware of the risk of property prices falling
  • Evidence that the customer owns the property (Single or joint names), key point, the property must not be owned by any other parties to ensure no entitlement to any equity
  • Evidence of ownership and no other interest in the security from other parties
  • Evidence mortgage balance, must be in the last 12 months
  • Valuation/marketing price required through the following professionals in the last 12 months, which can be a letter or report format for a RICS or NAEA registered estate agent (National association of estate agents)
  • Evidence the property has building insurance

Validation check

  1. Land registry check, to confirm name of the owner and if confirmation if any outstanding charges, to support the level of equity
  2. Evidence mortgage balance, linked to charges (1st,2nd,3rd….) in order to calculate level of equity, through credit search or statement evidence, must be in the last 12 months
  3. Valuation/marketing price required through the either of the following professionals in the last 12 months, which can be a letter or report format from a RICS or NAEA registered estate agent (National association of estate agents)
  4. The level of equity in the property must be sufficient to repay the interest only mortgage or a combination of repayment strategies
  5. Evidence the property has building insurance
  6. Completion of the existing BTL portfolio to confirm supporting details of the second properties

Repayment Plan Type

Sale of main residence

Evidence required

  • Supporting declaration to be on file confirming agreeing to interest-only mortgage and sale of the property is a repayment vehicle
  • As part of the process when valuation completed, must have a minimum of £300,000 equity. If Sale of main residence in combined with another strategy the minimum equity requirement is £300,000

Validation check

  1. Supporting declaration to be on file confirming agreeing to interest-only mortgage and sale of the property is a repayment vehicle
  2. As part of the process when valuation completed, must have a minimum of £300,000 equity. If Sale of main residence in combined with another strategy the minimum equity requirement is £300,000

Supporting documentation

For all interest-only mortgage have the following details to be held of file:

  1. Sale of main residence declaration to support this with support plan for downsizing
  2. Repayment strategy declaration, summary details of repayment plan to repay the mortgage

Supporting documents can be found on our Literature page