What is an interest only mortgage?

An interest only mortgage is where your monthly payments only cover the interest charged on the amount you borrow and you don't pay off any of the loan amount. In order to pay off the loan amount at the end of the term, you will need to have an acceptable repayment strategy.

Is it suitable for me?

Customers who are new to Yorkshire Building Society and looking to take out a mortgage on interest only must meet the following:

  • You can borrow up to a maximum of 75% Loan to Value.
  • Interest only borrowing for debt consolidation is not permitted.
  • Interest only borrowing is not permitted if the term of your mortgage goes beyond your stated retirement age or age 70, whichever is sooner. The term can only exceed your stated retirement age or age 70, whichever is sooner where income is not required to make the loan affordable.
  • You must have an acceptable repayment strategy in place to repay the loan at the end of the term.
  • You must provide evidence of your repayment strategy during the application process.
  • You must also provide this evidence again at least once during the mortgage term.

What are the acceptable repayment strategies?

There are a number of acceptable repayment strategies that can be used to support an interest only mortgage. Please see the table below for further details.
 

Acceptable Repayment Strategy Policy Rules
Sale of Mortgage Property at the end of term
  • This can be used to cover up to a maximum of 60% of the value of the property.
  • Total borrowing can go to 85% LTV (a maximum of 75% can be on Interest Only) by using an additional repayment strategy or borrowing on a Capital Repayment basis.
  • The property must have a minimum equity of £250,000 at the time of application for non London properties and £300,000 for properties located in London.
Sale of other UK property
  • A Maximum of 75% of the equity in the property can be used as your repayment strategy.
  • The property must be in located in the UK.
  • The property must be in your name/s only with no other parties named.

Evidence Required: If any property is mortgaged by another lender, a copy of the latest mortgage statement.
Pension Lump Sum
  • For defined contribution schemes and Self Invested Pension Plan (SIPP) – A maximum of 60% of tax-free lump sum (15% of total pension pot) can be used towards your strategy
  • For defined benefit schemes – A maximum of 90% of the tax free lump sum can be used towards your strategy.
  • Your full mortgage term must take you beyond the age of 55 and your declared retirement age must be at or before the end of the term of the mortgage.

Evidence Required: Latest Pension Statement.
Savings
  • The current value of the savings must cover 100% of the I/O element. The total can include eligible investments referred to below.
  • The savings must have been held for a minimum of 12 months.
  • The savings must be in pounds sterling.

Evidence required
Latest savings statement.
Existing Endowments
  • The projected mid-point maturity value must cover 100% of the interest only borrowing.
  • The endowment must have been in place for at least 12 months.
  • The end of the endowment term must not exceed end of mortgage term.
  • It must be a UK Policy provided by a regulated firm.

Evidence required
Latest endowment policy statement, dated in the last 12 months.
General Investments
  • The current value of the investments must cover 100% of the I/O element of the mortgage. The total can include eligible savings referred to above.
  • The investments must be in pounds sterling.
  • The investment must have been in place for a minimum of 12 months

Evidence required
Stocks and Shares ISA, Unit Trusts/OEIC, Investment Bonds: Copy of latest statement and/or
Stocks and Shares ISA: Copy of share certificates/statements containing evidence of share-holdings and their valuation.

How do I apply?

If you want to apply for an interest only mortgage, you will need to speak with one of our mortgage advisors by telephone.

Alternatives to interest only mortgages

Tracker mortgages

Link your mortgage repayments to the Bank of England’s base rate. The interest rate on a tracker mortgage changes with the Bank of England base rate, which means your payments could rise and fall.

Offset

Use your savings to offset against the balance of your mortgage and reduce the interest you pay.

Fixed rate mortgages

Fix your mortgage interest rate, so it won’t change over a set period of time, regardless of what is happening to interest rates elsewhere.

Before you apply

Why not try our mortgage calculators to get an idea of how much you could borrow for your mortgage and what the repayments would be.

Call us or book an appointment

Speak to one of our friendly advisers about your options.

0345 166 9510*

9am - 5pm Mon-Fri

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