The introduction of new rules for the mortgage market in April 2014 (as part of the Government’s Mortgage Market Review) have meant that, although the UK economy has recovered from its depression of 2008 – 2014*, lenders are now unwilling to offer mortgages on an Interest Only basis to many customers. If you took out an Interest Only loan before 2008, you will face problems in remortgaging on the same basis. On top of that, you need to develop a plan to pay back the original loan when it ends.

Here at Private Finance, we’ve seen an increase in phone calls this year from clients who are concerned about how they’re going to pay off the outstanding balance on their Interest Only mortgage and about how they can refinance their residential or investment property on the same basis. It’s certainly more difficult than it was, but it is not impossible, as long as you have equity of at least 25% of the value of the property, have a substantial income and can show a lender how you mean to repay the money borrowed, as well as the interest charged on it. (Unlike Capital Repayment mortgages, Interest Only mortgages require that you pay back just the interest each month. So, if you borrowed £500,000 for 25 years, the full £500,000 will still be payable at the end of the term.)

Are you finding it hard to find an Interest Only mortgage? Can you afford to switch to a Capital Repayment mortgage? Can you pass the new affordability checks?
Firstly, consult an independent mortgage adviser who will be able to tell you whether you can continue to borrow on an Interest Only basis with a different lender. If you need to change to a Capital Repayment mortgage, you may have to pass more rigorous affordability checks if you are switching lenders or even if you are remaining with the same lender. If you do switch, your payments will start repaying some of the capital as well as the interest, which means they’ll be higher every month.

Use our handy calculator to find out what level of mortgage repayments you could face – on an Interest Only basis and on a Capital Repayment basis – as rates change

Are you trying to work out how you can repay the capital on your Interest Only mortgage?
Talk to your existing lender – either directly or with the help of an independent mortgage adviser – and discuss your situation. You may be able to extend your mortgage term or switch to a Capital Repayment mortgage. Or you may be able to remortgage to a different lender entirely, maybe even on better terms. Some may allow you to sell a second home or other assets to ultimately pay off the mortgage capital. Other lenders will accept lump sum overpayments from savings accounts, a pension pot if you’re over 55, investment bonds, dividends from an investment portfolio or regular savings plans.

Next steps
If you are looking for a substantial Interest Only mortgage, we recommend you take independent specialist advice from a broker who is used to regularly arranging such mortgages with specialist lenders, many of whom you will not find on the High Street or outside their regional base. It is likely to save you time and money and mean that you can afford to buy or remortgage your property on terms that suit your financial circumstances.

Private Finance

  • Established in 1999 Private Finance has successfully negotiated billions of pounds of mortgages. It is an independent mortgage broker whose mission is to exceed your expectations, working on your behalf to procure competitive terms and a suitable solution, quickly and efficiently.
  • Private Finance is not limited in the range of mortgages it will consider for clients. It is well respected by mainstream institutions and private banks, with which it has a reputation for introducing high quality clients. Its mortgage brokers are qualified professionals who understand and empathise with the needs of discerning individuals.
  • You can be assured that your mortgage will be competitively priced and well suited to your needs.
  • As a client of Private Finance your mortgage arrangements will be handled on a day to day basis by your dedicated broker. You will not have to deal with call centres or spend time providing personal information via online forms.
  • You are therefore free to get on with your life in the knowledge that your mortgage application is being managed proactively in order to meet important deadlines.
  • Our brokers take pride in helping clients fulfil their property aspirations and can often turn the seemingly impossible into reality! You may be able to look at a wider range of property than you previously expected and overcome obstacles which might have stood in the way of progress.

Email or call 0800 980 8777.

*In Q2 2014, Britain’s economy finally regained and passed the peak level of output it reached before recession struck in 2008, according to Office for National Statistics, thus officially ending the depression. The recession itself – a period of falling output – lasted from Q2 2008 to Q2 2009 inclusive.

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