Mortgage Advisor & Director
Mortgage Advisor & Director
There are lots of interest-only mortgage lenders available, but the terms on which they accept interest-only applications vary substantially. We look at how criteria can vary between lenders, and how to choose the right interest-only mortgage lender for your needs.
Do all lenders offer interest-only mortgages?
Most lenders offer some interest-only mortgage options, but some only offer this type of deal to buy-to-let customers. If you’re looking for an interest-only residential mortgage, lenders tend to be harder to come by and have stricter criteria.
Some lenders may hold the following requirements for an interest-only mortgage, particularly those for residential use:
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A minimum income threshold of around £75k
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A deposit or equity of 40%
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A fallback repayment vehicle (on top of the main one)
Those looking to remortgage can have an easier time being accepted on interest-only than borrowers buying a residential home, especially if they hold a good amount of equity.
As well as the criteria already mentioned, such as deposit size and income size, interest-only mortgage lenders can also vary significantly in which repayment vehicles they allow, and the types of property that they will accept.
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Who are the best interest-only mortgage lenders?
The best interest-only mortgage lender for you will depend on a range of factors, from the purpose of the loan to your financial circumstances.
While not all mortgage lenders in the UK offer interest-only repayment options, for example, Bluestone and Bank of Ireland, the majority do. However, their criteria can be tough to meet, so it’s important to find the most suited interest-only lender for your specific needs.
Here are some examples of both high street and specialist lenders that offer interest-only repayment options:
Below are examples of the lenders available, along with some of their specific requirements:
1. NatWest
NatWest offer interest-only mortgage at up to 75% LTV, but borrowers must have an income of at least £75k or £100k for joint applications.
They offer a range of repayment options, including cash from savings or resale of the mortgaged property, or other properties and assets. They will also consider Investments and stocks, as well as up to 25% of the current value of a pension. Progress of agreed repayment vehicles will be monitored where applicable.
2. First Direct
First Direct offer interest-only mortgages of up to 75% LTV. They only offer this as an offset mortgage, which is fairly difficult to come by. The offset interest-only mortgage allows borrowers to link a First Direct bank account to their mortgage to reduce the interest charges, but this option is only available to existing mortgage customers.
3. Accord Mortgages
Accord provides interest-only mortgages with a maximum of 75% LTV. They also offer a part and part mortgage (which combines capital repayment and interest-only) loans at up to 85% LTV. However, the term may not go beyond the borrowers' 70th birthday, or their retirement, whichever is sooner.
All interest-only loans offered by Accord are offset-style products, and they are only available through a broker, as they don’t deal directly with the public. They offer a wide range of repayment strategies, including the sale of the mortgaged or another property, savings, or a lump sum pension scheme. They will also consider various investment and endowment products, with satisfactory evidence.
4. Platform
Platform Home Loans, which is now known as Cooperative Bank for Intermediaries, can only be accessed through a broker like ourselves. However, they offer both interest-only and part and part-repayment options for residential mortgages.
Full interest-only mortgages are available at up to 75% LTV and part interest-only, part capital at up to 85% LTV. They also have a minimum income requirement of £60,000 for solo applicants and £80,000 for joint applicants.
They allow many repayment options, including property sales, investments, shares, pensions, and savings. They may even allow downsizing as a repayment vehicle, so long as customers have £300,000 of equity in their home.
5. TSB
TSB is one of the few high street lenders to offer interest-only as a repayment option for residential purposes, but they also provide this option for buy-to-let mortgages. They have a maximum loan size of 75% LTV for this type of mortgage and may need ongoing evidence that repayment vehicles are performing as projected.
The repayment vehicles currently accepted include the sale of the mortgaged or investment property, even potentially where not yet purchased. They also allow for savings, ISAs, stocks and shares, endowment policies, investment bonds, pensions and unit trusts.
Retirement interest-only mortgage lenders
Retirement interest-only (or RIO) mortgages are used predominantly as an alternative to equity release as they don’t need to be repaid in the borrower’s lifetime. They are also helpful for those borrowers that purchased their home with an interest-only mortgage, but have not repaid the full loan by the end of the term.
Few high street lenders offer RIO mortgages, but some building societies, and specialist mortgage lenders that do. Teito can help you find the best retirement interest-only mortgage for your needs and circumstances.
Here are some examples of lenders we partner with that offer RIO mortgages:
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Leeds Building Society: Offers RIOs to those between 55 and 80 at a maximum of 55% LTV
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Hodge Bank: Offers RIO mortgages as up to 75% LTV, as well as a range of equity release products
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Marsden Building Society: Offer RIO mortgages of up to 65% LTV to those with a minimum property value of £150,000
How to choose the right lender for your interest-only mortgage
As criteria are stricter for interest-only mortgages, it can be difficult to find a suitable lender and a competitive deal. At Tetio you can easily compare the latest interest-only mortgage rates for free using our specialist interest-only calculator. However, to ensure you find the most suitable product for your needs, it’s a good idea to seek advice from one of our experienced brokers.
As a whole of market brokers, we have access to a broad range of interest-only lenders, including those that are not available directly to the public. This means we can sometimes offer exclusive deals, as well as help you to secure the best deal for you in minutes.
Get in touch to arrange your no-obligation, free initial consultation with one of our 5-star rated interest-only mortgage experts.
FAQs
Some lenders allow borrowers to switch from a capital repayment mortgage to interest-only, however, you’ll need to meet the criteria of their interest-only mortgages.
Most lenders that offer interest-only mortgage options will consider this, and in some cases, it can be easier than remortgaging to a cheaper repayment deal with another lender.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.