Interest Only Mortgages
The Society recognises the risks associated with owner- occupied Interest Only mortgages, and will only permit lending on this basis if there is a credible plan for repayment of the capital sum at the end of the mortgage term.
All requests on owner-occupier mortgages for lending on an Interest-Only basis, either at inception or during the term of the mortgage, must meet the following criteria:
Maximum Loan to Value Ratio
Maximum Loan Size
Acceptable Repayment Vehicle
The Society will accept the following repayment vehicles:
- Endowment policies, where the projected growth rate at 4% will generate sufficient to repay the mortgage borrowing. Any shortfall in projected growth is currently placed on a capital repayment basis. A copy of the latest projection statement dated within the last 12 months should be provided.
- Stocks & shares ISAs are acceptable as long as we receive a letter from the ISA provider, stating that the projected value at maturity is sufficient to allow full repayment of the mortgage.
- Pension lump sums are acceptable provided the projected lump sum at 4% growth is sufficient to repay the mortgage in full. The lump sum may also be used for borrowers with a final salary scheme and/or pensions can be combined. A copy of the latest projection statement dated within the last 12 months should be provided.
- Second/Investment properties are acceptable provided the following rule is used:
- For mortgages maturing in > 5 years, the current equity in the second property must be sufficient to repay the mortgage.
- For mortgages maturing within 5 years, the current equity in the property must be no less than 120% of the mortgage.
Full details of the property should be provided including confirmation of ownership and evidence of the amount of any outstanding mortgage debt. A recent valuation report or AVM report should be obtained to provide comfort in respect of the property value.
Any monthly contribution in respect of these repayment vehicles must be included in the affordability calculation.
The acceptance of any vehicle in variance with the above may only be agreed by the Head of Lending or Mortgage Operations Manager.
FOR INTERMEDIARY USE ONLY