Sudden interest in Interest Only Mortgages

Nat West Mortgages turn back to interest only

After three years where lenders appetite for Interest Only lending on residential mortgages has reduced to practically zero, we were surprised to see a major lender announce today that they are broadening their offer to once again include Interest Only applications.

From 21st of September 2015, Nat West will allow borrowers to have Interest Only mortgage arrangements provided they meet certain criteria.

An acceptable repayment strategy

  • One borrower earning at least £100,000
  • A maximum loan to value of 75%

What surprised us about Nat West’s policy is the lack of a minimum equity figure. Remaining Interest Only offers in the market have always been based on the borrowers maintaining a minimum level of equity in the property (typically £150,000-£300,000). This gives them scope to downsize as a capital repayment method. Nat West seem to be applying no such condition.

Repayment strategies

As with any Interest Only mortgage the lender asks for a credible repayment strategy to settle the capital at a later date

acceptable repayment strategies include:

  • Stocks and shares – inside or outside of an ISA
  • Investment vehicles such as unit trusts
  • Cash value of a pension plan
  • Sale of property

What does this mean?

This offer from NatWest is not going to make Interest Only residential mortgages a major factor of the UK market. Clearly the minimum income level will preclude 90% of borrowers at outset. However, for those that have a credible reason to prefer the Interest Only route on their mortgage this is a welcome development.

Further information on Interest Only Mortgages

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