Is an Interest Only Residential mortgage right for me?

Before the Credit Crunch hit in 2008 the majority of residential mortgages were sold on an interest only basis, this was due to people wanting to keep their monthly payments to a minimum but it was soon determined that when it came to the end of the mortgage term people had not built up a substantial repayment strategy which meant home owners were forced to sell their property to pay off the mortgage.

Lenders therefore started to retract their interest only residential mortgages and home buyers were to take Repayment mortgages. As time has passed since the Credit Crunch lenders have been able to start accepting Interest Only Residential Mortgages but only if you meet certain criteria. These include:

• a minimum income of usually around £75,000 per annum
• Proof of an acceptable repayment strategy
• Loan to value is restricted – this varies between lenders and on what your repayment strategy is
• Minimum equity amount – this also varies between lenders and on what our repayment strategy is

The idea behind these restrictions is that the product is aimed at high earners rather than for ‘affordability’ purposes. As mentioned above an acceptable repayment strategy is required for a lender to accept your mortgage on an interest only basis – we have listed a few below for you:

• Cash ISA or other savings
• Stocks, Shares, ISA or other liquid investment
• Endowment policy
• Pension (25% of fund value)
• Downsizing/sale of main residence
• Sale of another mortgaged property

The lender will need to see proof of the above and will also get in contact throughout the term of the mortgage to determine that the repayment strategy will be satisfactory to repay the loan in full at the end of the term.

You are able to do a part interest only part repayment mortgage, which is often used for high earners buying high value properties with a large deposit to reduce the monthly payments to meet their budget but also gives them the security that part of their mortgage is being repaid during the term of the loan.

If you would like more information and to determine if you personally can qualify for an Interest Only Residential Mortgage get in contact today!