Residential interest-only
We offer a residential interest-only mortgage, which gives customers a choice of how to repay. Our interest-only mortgages are available to new and existing mortgage customers.
Eligibility criteria
To be eligible for an interest-only mortgage, the customer will need to:
- Meet the maximum age requirement – see ‘Maximum Age’ in our lending criteria
- Meet the income and LTV requirements - see 'Interest-only' in our lending criteria
- Have a suitable repayment vehicle(s) in place to pay the outstanding mortgage balance by the time the mortgage ends
- Provide evidence of a suitable repayment vehicle(s) during application
- Provide a declaration, confirming the repayment vehicle(s) during application using the information found in the supporting documentation section.
Repayment vehicles
These are the repayment vehicles we accept as proof that the customer can cover the capital element of the mortgage at the end of the term. They can use one vehicle alone or use any number of them in combination.
As part of the mortgage application process, you should enter into the system details of the main repayment vehicle, the relevant evidence and a declaration for all vehicles.
Endowment policies
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
- Evidence must be from the last 12 month and statement shows payments are up to date. The middle (amber) projection would be used
- The middle value evidenced must cover the interest-only element or combination of repayment strategies
- Endowment must be in the applicant(s) names only
Savings (UK)
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
- Must have been held for a minimum of 12 months
- The investment must be in Great British Pounds / UK Sterling Only
- The value evidenced must cover the interest-only element or combination of repayment strategies
- Savings must be in the applicant(s) names only
Investment plans (Professionally managed)
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
- Latest statement issued by the administering company within the last 12 months confirming current value
- The cash value evidence to cover the interest-only element or combination of repayment strategies
- Investments must be in the applicant(s) names only
Share Portfolio
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
- Latest account statement or details from authorised stock broker confirming current valuation issued within the last 12 months confirming current value
- The cash value evidence to cover the interest-only element or combination of repayment strategies
- Share portfolio must be in the applicant(s) names only
Pension
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
- Evidence from the pension provider in the last 12 months of the pension to be utilised to repay the mortgage
- 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
- 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
- If evidence supplied shows a number of growth rates we can only accept the lowest figure
- The lump sum evidence to cover the interest-only element or combination of repayment strategies
Sale of second (UK) property (including Buy to let)
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)
Validation check
- Land registry check, to confirm name of the owner and if confirmation if any outstanding charges, to support the level of equity
- 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
- 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)
- The level of equity in the property must be sufficient to repay the interest only mortgage or a combination of repayment strategies
- Completion of the existing BTL portfolio to confirm supporting details of the second properties
Sale of main residence
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 is combined with another strategy the minimum equity requirement is £300,000
- Where the loan is part interest only and capital and repayment, the equity calculation is including the capital and repayment element
- Equity assessment is based on interest only balance outstanding on the valuation result gained as part of the application
Validation check
- 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 the valuation is completed, must have a minimum of £300,000 equity. This is completed based on the valuation result minus the interest only loan amount
- The minimum level of equity must be £300,000, which includes the capital and repayment parts of the loan
For example:
Property value: £706,000
Loan amount £600,000
85% LTV
Interest only: £406,000
Repayment: £194,000
Equity including repayment element = £300,000
How an interest-only mortgage works
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.
What happens if the application is accepted
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 make sure 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.
Existing customer applications
If your client would like to switch their repayment method within their fixed product maturity window, please submit a Product Transfer application form. If your client is not within the final 6 months of their fixed term mortgage product and would like to change their repayment method, please ask them to call us direct.
Supporting documentation
For all interest-only mortgages, the following documents are to be held on file (as applicable):
- Sale of main residence declaration - confirms main residence is the repayment vehicle.
- Repayment strategy declaration - confirms repayment plan and vehicle(s).
Supporting documents can be found on our Literature page