More of the banks and building societies provide interest-only mortgages and the cheapest deals are priced just over 1%.
While many of the largest lenders like HSBC, Santander and Halifax supply interest-only mortgages at incredibly cheap rates, they have very different acceptance criteria. Some require borrowers to earn over £100,000 to qualify, while others do not have a minimum income, and some want a certain amount of equity in the property.
Aaron Strutt, product director at Trinity Financial, says: "Many borrowers do not realise there are so many lenders offering interest-only mortgages and they are more widely available. If you do take an interest-only mortgage it is vital borrower make overpayments or have a plan to ensure the mortgage is repaid by the end of the term.
"Santander for Intermediaries lowest interest-only mortgage is fixed for two-year at 1.25%, and it has a £999 arrangement fee. Applicants would need a 40% deposit to qualify the bank supplies full interest-only or part interest-only and part capital-repayment."
To access Santander’s interest-only mortgages when an applicant(s) combined gross income is less than £100,000, the maximum income multiple is 4.45 times salary. If any part of the mortgage is on an interest-only basis, the maximum loan to value is 85%.
For an applicant with a gross income of £250,000 or less, any lending over 50% loan-to-value must be on a capital and interest basis. Providing at least one applicant has a gross income of more than £250,000, the policy gets more generous, so any lending over 75% loan-to-value must be on a capital and interest basis.
Coventry for Intermediaries is offering no minimum income interest-only mortgages, but the client will need to have a sufficient income to support an equivalent capital repayment mortgage. Borrowers will need a large deposit and have a minimum £300,000 equity left in their property after the mortgage amount required has been considered.
Barclays is one of the largest lenders offering interest-only mortgages and the bank has just improved its policy. The lender has interest-only mortgages available from 1.3% for mortgages up to £2 million with £999 arrangement fees.
It has enhanced its Part and Part lending policy, so Barclays Wealth Management or Premier Banking relationship borrowers will be access 85% loan-to-value mortgages to help reduce monthly costs.
The existing maximum loan-to-value limits and criteria Barclays interest-only portion is 50% maximum loan-to-value and £300,000 minimum equity requirement for sale of the property repayment strategy, and 75% max LTV for other repayment strategies, such as the sale of existing stocks and shares ISAs.
Applicants will need a minimum gross annual income of £75,000 for a single applicant or £100,000 for a joint application where no individual earns in excess of £75,000.