More homeowners calling to switch their mortgages from capital repayment to interest-only
Trinity Financial is receiving more calls from homeowners keen to swap their mortgages from capital repayment to interest-only as they look to lower their monthly costs.
Our brokers receive enquiries from borrowers asking for "breathing space" during these troubled financial times. Even though mortgage rates are getting more competitively priced, they are still more expensive than they were, and significant numbers of people face increased monthly mortgage costs.
Things to consider when swapping to interest-only
If your mortgage rate is coming to an end soon and you are wondering if you should swap from capital repayment to interest-only, there are a few things to consider.
Firstly, if you plan to stick with your existing lender, you will need to apply to change the setup of your mortgage and switch to interest-only, and it is unlikely you will be automatically accepted. Some lenders have more rigid interest-only qualification rules than others, so some may require you to earn over £100,000 yearly or have a large amount of equity in your property.
Rather than swapping the mortgage to interest-only, you may want to put part of the mortgage on interest-only and some on capital repayment. Not only does this mean you are still repaying some of the debt, but the mortgage may also be easier to qualify for if you do not meet the minimum income requirements.
Is it a good idea to switch to interest-only or even part-interest-only?
If you take an interest-only mortgage, you need to consider swapping back to capital repayment in the near future. Many borrowers get to the end of their mortgage term and still have a large sum they need to repay.
Interest-only mortgages have lower monthly repayments than capital repayment mortgages because you are not paying back any of the total sum you borrowed.
Which lenders have decent interest-only policies?
Most of the banks and building societies offer interest-only or part interest-only. Santander for Intermediaries, HSBC and Barclays are some of the lenders with good policies, and their products are popular with our clients.
Santander for Intermediaries allows interest-only applications provided there is an acceptable source of funds to repay the capital at the end of the mortgage. No minimum income is required for new customers and existing borrowers who are increasing the interest-only amount.
Where any part of the mortgage is on interest only, and the combined gross income is less than £100,000, the maximum income multiple is 4.45 times income. Where any part of the mortgage is on an interest-only basis, the maximum loan-to-value for the overall lending is 85% loan-to-value) LTV.
Where at least one applicant has a gross income of more than £250,000, any borrowing over 75% LTV must be on a capital and interest basis. For an applicant with a gross income of £250,000 or less, any lending over 50% loan-to-value must be on a capital and interest basis. If any loan part is on an interest-only basis, the mortgage term cannot exceed the applicant's 70th birthday.
Barclays for Intermediaries: The maximum loan-to-value allowed on an interest-only basis is 50%, where the repayment strategy is the sale of the mortgaged property or 75%, where the repayment strategy is another allowable source.
Where the repayment strategy is selling the mortgaged property, customers must have £300,000 of equity. The maximum term for an interest-only mortgage is 25 years and cannot extend into retirement. The maximum income multiple applicable to interest-only mortgages is 5.00x single or joint salaries. A minimum income criteria is required to be eligible for interest-only borrowing, including part and part borrowing:
- Sole application – the applicant must have a gross income of at least £75,000
- Joint application – one applicant must have a gross income of at least £75,000
- Joint application – where no individual income is over £75,000, combined gross income must be at least £100,000
Metro Bank for Intermediaries accepts interest-only if the sale of the property is not being used as the repayment vehicle: Minimum Income of £50,000 is required if any part of the loan is interest-only. This is the total of all income sources from all applicants. The maximum amount on interest only is 75% LTV. The maximum LTV for part and part is 80% LTV.
Capital raising, including debt consolidation, is accepted, up to a maximum 80% LTV. Assets generated or held in a currency other than (£) sterling are not accepted as a Repayment Strategy.
Metro Bank interest-only criteria if the property is being sold repay the mortgage: A minimum income of £50,000 is required if any part of the loan is on Interest Only. This is the total of all income sources from all applicants. Sale of Subject Property accepted where there is a minimum property value of £600,000. Interest-only downsizing up to 50% LTV and up to 25% LTV using another interest-only repayment strategy or capital and interest repayment. If the property sale is part of the repayment strategy, then the maximum overall LTV is 75%.
Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation.
Please note: We recommend you regularly check that your mortgage repayment plan is on track. The information contained within was correct at the time of publication but is subject to change. Your home may be repossessed if you do not keep up repayments on your mortgage
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