Interest Only Mortgages

An interest-only mortgage is where your monthly payment only covers the interest charged on your mortgage and will not reduce any of the balance itself. This means your monthly payments will be less than if you had a repayment mortgage. However, the total cost of an interest-only mortgage will be higher because you'll be paying interest on the full loan amount throughout the mortgage term.

With an interest-only mortgage, you'll need to know from the start how you're going to find a lump sum to repay the loan at the end of the mortgage term. When you apply, we'll ask you to give us details of the repayment plan(s) you are using to repay everything you owe by the end of the mortgage term.

From time to time, we may ask you to confirm and/or show us that your repayment plan(s) remains in place and on track to repay the mortgage. If it is identified that your plan may not produce enough to repay everything you owe by the end of the term, we'll try to contact you to discuss other arrangements which will help you get back on track. These may include transferring some, or all, of your loan onto a repayment basis.

You are responsible for regularly checking that your plan remains on track. If your plan does not provide enough money to repay your mortgage at the end of the term, you may have to sell your property.

We write to all our interest-only customers during the term of their mortgage. This is to remind you of how an interest-only mortgage works, the need to have a plan in place and the importance of regularly checking that the plan you have is on track to repay your mortgage at the end of the term. It also offers contact details should you need to speak to a mortgage specialist regarding your plans.

Remember, it is your responsibility to ensure you have a repayment plan in place and that it remains on track to repay everything you owe.

  1. Let us know what your plans are
  2. How often will you write to me?
  3. Can I opt out of receiving these letters
  4. Your Annual Mortgage Statement

1. Let us know what your plans are

We are here to help, so it is important that you let us know what plan(s) you have in place to repay your mortgage, and/or discuss any suitable options should you need to get back on track.

Please call our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

2. How often will you write to me?

We regularly write to our interest-only customers throughout the lifetime of their mortgage. This is to remind you it is important to check that your repayment plan remains on track. Our Interest Only mortgage specialists are here to help, call to discuss your options on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

3. Can I opt out of receiving these letters?

You cannot opt out of this mailing. It is our duty as a responsible lender to make sure that our customers are fully aware of their responsibility to repay their interest-only mortgage. Our mortgage specialists are here to help, should you have any concerns about your interest-only mortgage call us on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

4. Your Annual Mortgage Statement

Your annual mortgage statement also contains information about your interest-only mortgage. You can check your annual mortgage statement or sign in to Online Banking to view your mortgage details.

It is important that you have a plan in place to be able to repay everything you owe at the end of your mortgage term.

  1. What is an acceptable repayment plan?
  2. What if my repayment plan is not on your list?
  3. I have a plan in place
  4. I don’t have a plan in place
  5. I have a plan but think I may have a shortfall

1. What is an acceptable repayment plan?

The following are acceptable for new mortgage applications, product transfers and additional borrowing:-

Repayment plan
Our assessment of acceptable values
Endowment policies (UK)

Most endowment companies will present three growth rates. We allow up to 100% of the projected amount using the middle figure.

Where a two-tier projection is provided, we will take the lowest projection figure.


Pensions

For Money Purchase schemes we can use a maximum of 15% of the projected value, if the latest projection value is greater than £400,000.

For Final Salary schemes we can use a maximum of 60% of the tax free lump sum amount, provided the projection shows a minimum lump available of £100,000 and a projected total fund value greater than £400,000.


Stocks and shares (UK)
We'll accept up to 80% of the latest valuation of the stocks and shares, ISA, OEIC or investment bond (if the latest value is greater than £50,000, some conditions may apply).
Stocks and shares ISA (UK)
We'll accept up to 80% of the latest valuation of the stocks and shares, ISA, OEIC or investment bond (if the latest value is greater than £50,000, some conditions may apply).
Unit trusts, open-ended investment companies (UK)
We'll accept up to 80% of the latest valuation of the stocks and shares, ISA, OEIC or investment bond (if the latest value is greater than £50,000, some conditions may apply).
Investment bonds (UK)
We'll accept up to 80% of the latest valuation of the stocks and shares, ISA, OEIC or investment bond (if the latest value is greater than £50,000, some conditions may apply).
Sale of second home (UK)
We'll check the ownership of the property and assess its value. We'll deduct any amount owed that is secured against the property and allow you to use up to 80% of the amount left over (if this is over £50,000, some conditions may apply).

2. What if my repayment plan is not on your list?

This is not an exhaustive list. If you are an existing customer not making any changes to your product or mortgage balance, the repayment plan you have may be acceptable providing it covers the mortgage balance within the term. However, if you apply for additional borrowing or a new product you will need to refer to the above list as we will need to see evidence of an acceptable repayment plan which covers the whole mortgage.

3. I have a plan in place

If you already have a plan in place, remember it is your responsibility to regularly check that it is on track to cover everything you owe and clear your mortgage balance at the end of the term.

If you are worried that it may not repay your mortgage, the sooner you contact us the quicker we can work with you to get back on track. Call our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

Free, impartial advice on interest-only mortgages is available from the Money Advice Service

4. I don’t have a plan in place

It is never too early to put a plan in place so you need to think about it right away. This may include switching some or all of your outstanding balance to a repayment mortgage, setting up a new investment or arranging to overpay. Whatever you are considering you should speak to one of our mortgage specialists as soon as possible.

The earlier you can call, the more time you have to consider your options and choose the most suitable one(s) for you. Fewer options may be available to you the longer you leave it, so call one of our Interest Only mortgage specialists to discuss those appropriate to your circumstances on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

Free, impartial advice on interest-only mortgages is available from the Money Advice Service

5. I have a plan but think I may have a shortfall

You need to ensure that your plan is able to fully repay everything that you owe at the end of the term. If you are unsure that your plan will cover the amount you owe, you should speak to one of our mortgage specialists as soon as possible. The earlier you can call, the more time you will have to discuss your options and agree a plan that is suitable for you. The fewer options may be available to you the longer you leave it. Call our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

Free, impartial advice on interest-only mortgages is available from the Money Advice Service

There are various options available if you think you may have a shortfall. The sooner you act the more time you will have to get back on track. To discuss your options call one of our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

  1. Making Overpayments
  2. Transfer all or part of your mortgage to repayment
  3. Using savings or investments
  4. Selling your home
  5. Contact one of our mortgage specialists

1. Making Overpayments

Making overpayments can reduce your overall mortgage debt, as each overpayment reduces your mortgage balance and the interest you are charged. Even small overpayments can make a big difference to the total amount you owe and the amount of interest that you will pay. As well as making regular overpayments, there is also the option to make additional payments whenever you are able to.

The table below illustrates how making overpayments can reduce the amount you owe over time.

This is based on an average loan amount of £120,000, average interest rate of 3.99%, and an average term of 25 years. The comparison calculations are based on regular overpayments commencing at both 7 years and 10 years from end of term.

Regular overpayment amount Normal montly payment New monthly payment (incl. overpayment)
None £399 £399
£50 £399 £449
£100 £399 £499
£150 £399

£549

 

If overpayment commenced at 7 years remaining


If overpayment commenced at 10 years remaining

Regular overpayment amount Capital Reduction Potential Interest Saving Capital Reduction Potential Interest Saving
£0 £0 £0 £0 £0
£50 £9,804 £1,304 £14,866 £2,766
£100 £19,608 £2,608 £29,732 £5,532
£150 £29,412 £3,912 £44,598 £8,298

This is for illustrative purposes only and may not reflect your own personal circumstances. If you wish to make a lump sum overpayment this can further reduce your capital remaining and potential interest saved. To see how making these changes, or a lump sum overpayment, could impact your mortgage please call one of our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

Remember, you may need to pay an Early Repayment Charge (ERC) so it is important to check whether these apply to your mortgage product. This detail can be found on your original mortgage offer, your mortgage statement or online banking.

2. Transfer all or part of your mortgage to repayment

By switching to repayment you will reduce your mortgage balance month by month. As long as you stay on track with your monthly payments your mortgage will be completely paid-off at the end of the term.

If switching to repayment is unaffordable after reviewing your income and expenditure we will consider a part and part mortgage, where part of your mortgage remains on interest-only and an affordable part is transferred to repayment. Whilst this will mean you will not pay off your entire loan over the term of the mortgage, you will reduce the balance you owe. This type of mortgage is particularly helpful if you are facing a shortfall in your repayment plan. Call one of our Interest Only mortgage specialist to see if a part and part mortgage is suitable for you on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

3. Using savings or investments

If you plan to pay off your mortgage using savings or investments it is important that you review them at least once a year to make sure they are on track. If you are worried that your investments are not performing as well as they should and you want to understand your mortgage options, call one of our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

You could use your savings or investments to make a lump sum overpayment, but remember you may need to pay an Early Repayment Charge (ERC) so it is important to check if these apply to your mortgage product.

Remember, we don’t give advice on what is best for your savings and investments. The value of an investment could rise or fall; therefore you may want to consult an independent financial advisor. A list of independent financial advisors can be found at www.unbiased.co.uk

4. Selling your home

If you plan to pay off your mortgage by selling your property, you will need to make sure that the proceeds from the sale will repay everything that you owe.

It could take longer to sell your property than you anticipate, and property prices may not be as you originally expected, so you will need to keep a close eye on the housing market in your area.

If you have reached the end of your mortgage term and your property is taking longer than anticipated to sell, talk to one of our Interest Only mortgage specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

5. Contact one of our mortgage specialists

If you have any concerns about repaying your mortgage, the most important thing is to get in touch with us as soon as possible. Our Interest Only mortgage specialists are available on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

Free, impartial advice on interest-only mortgages is also available from the Money Advice Service

A Mortgage Review is where we check that your mortgage is still appropriate for your circumstances. This includes the repayment type, repayment term and mortgage product which relates to the rate of interest you pay

This is an advised service for which there is no fee.

What do I need to consider for a Mortgage Review?

We will need approximately 2 hours of your time, for this we have a free phone number - 0808 145 0378

The review will involve discussing your needs, circumstances and affordability which will help us arrive at an appropriate recommendation.

For the affordability assessment, we will need details of your income and expenditure. This includes any main income you have such as salary, guaranteed bonus and overtime and any other income you may have such as a pension or state benefits. For your expenditure we will need a clear picture of your outgoings such as what you spend on council tax, utilities and other bills. You may want to have a bank statement to hand if you pay items by direct debit.

If you are self-employed or receive rental income from an unencumbered property, you will need to obtain the latest three years SA302’s and Tax Year Overviews from HM Revenue & Customs (HMRC). We will ask you to send these to us before we can complete the review of your mortgage. You can request these documents via the HMRC self-assessment Helpline number 0300 200 3310 or online at www.gov.uk/log-in-register-hmrc-online-services

If you are retired and receive state pension please have your latest full month’s bank statement or benefit award letter dated in the last 12 months available for the call.

If you receive a private pension, please have your latest pension P60/pension statement/pension payslip.

We will also need details of any credit commitments you have such as credit cards, personal loans and other mortgages. We will need details of the outstanding balances, what your monthly payments are and how many payments you have left. You’ll find this information on your latest statement.

If this is a joint mortgage, then everyone named on it must agree to any changes and therefore, we will require their consent before we can proceed with the review.

We will contact you a few times within the last 12 months of your mortgage end date to remind you that you’ll need to repay everything that you owe at the end of the term. You will need to make sure that your repayment plan end date matches your mortgage end date. If you are worried that your repayment plan will not pay off the amount outstanding, please call us as soon as you can on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

  1. When do I need my funds available to repay?
  2. I’m using the sale of my mortgaged property to repay my outstanding balance, what should I do and when?
  3. How do I make my final repayment?
  4. What happens if I cannot repay some or all of the outstanding balance at the end of term?
  5. What if my repayment plan end date doesn’t match my mortgage term?
  6. What if I don’t contact you or repay my mortgage?

1. When do I need my funds available to repay?

The funds need to be available by the mortgage term expiry date, so that the balance can be paid in full when the term expires. However, you are able to repay your mortgage balance at any time. If you are looking to do this then you will need to contact our mortgage specialist s on 0345 727 3747 for a final redemption figure which may include early repayment charges if applicable to your mortgage.

2. I’m using the sale of my mortgaged property to repay my outstanding balance, what should I do and when?

You will need to make sure your property is sold before the term expires on your mortgage. If this has not been possible then you will need to contact us on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday to discuss further options that may be available to you.

Remember, it could take longer to sell your property than you anticipate and property prices may not be as you originally expected, so you will need to keep a close eye on the housing market in your area.

3. How do I make my final repayment?

You will need to contact us on 0345 727 3747 for a final redemption figure and we will provide details on how to make the payment.

4. What happens if I cannot repay some or all of the outstanding balance at the end of term?

You will need to contact our Interest Only specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday to discuss what options are available to you.

5. What if my repayment plan end date doesn’t match my mortgage term?

You will need to contact our Interest Only specialists on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday to discuss what options are available to you.

6. What if I don’t contact you or repay my mortgage?

You will start to receive phone calls and letters from the End of Term department. If no contact has been made and the mortgage has not been paid in full, this could lead to the repossession of the property.

Remember, it is your responsibility to ensure you have a repayment plan in place and it remains on track to repay everything you owe. If you have any concerns about repaying your mortgage we suggest you get in touch with us as soon as possible. Our mortgage specialists are available on 0800 092 0226 between 8am – 8pm Monday to Friday and 8am – 1am Saturday.

Money Advice Service

Free, impartial advice on interest-only mortgages is also available from the Money Advice Service

Independent Financial Advisor

A list of Independent Financial Advisors is available at www.unbiased.co.uk.

Step Change Debt Charity

Further debt advice and debt management help is available at www.stepchange.org.