Interest-only mortgages

Interest-only mortgages

The maximum LTV we will currently consider lending on interest-only mortgages is 75%, subject to criteria.

Where the repayment vehicle is ‘sale of the security property’ the maximum LTV we will lend on interest-only mortgages is 60%, subject to criteria. A further 15% may be taken on a repayment basis taking the overall LTV up to maximum of 75%.

Minimum income required for sole applicants is £75K based on the gross amount used for affordability.

Minimum income required for joint applicants is £75K for one applicant OR a combined minimum income of £100K for both applicants, based on the gross amount used for affordability.

Documents relating to the repayment vehicle must be received before a new mortgage offer can be considered.

Interest only criteria applies to residential applications involving porting, where all or part of the mortgage is to proceed on an interest only basis. If an applicant is porting like for like where they were on interest only and staying on interest only, then there is no need for repayment vehicle evidence, but the repayment strategy should be keyed as ‘other’ on Mortgage Pro.

Repayment vehicles

The following are NOT acceptable repayment vehicles:

Sale of main residence if the interest only mortgage is secured on another property.
Sale of non property assets.
Inheritance.
Bonuses.

The table below shows the repayment vehicles we accept and the evidence required in each case. It also shows the methods we use to assess whether a repayment vehicle meets our lending criteria. This information is only a guide. A mortgage offer will only be issued once we have confirmed that the evidence supplied meets our criteria.

Repayment Vehicle	Evidence Required	Validation	Assessment Method
Endowment Policies (UK)	Copy of latest projection statement dated within the last 12 months.	We will compare the projected values on the statement to the amount of Interest Only lending required. If more than one value is given, we will take the middle value.	Endowment companies will present three growth rates. We allow up to 100% of projected amount using the middle figure or the lower projection if there are 2 growth rates.
Sale of Second Home/Buy to Let (UK) Including Holiday Lets (Commercial properties are not acceptable)	Property details, confirmation of ownership, amount of any mortgage debt (Property valuation and land registry search carried out by us). See Sale of Second Home/Buy to Let details below.	We will verify the ownership of the second property and its value. We will compare the equity available in the property with the amount of Interest Only lending required.	Equity within the property must be over £50,000. We will use 80% of the current equity value of the property to support Interest Only lending. Please note that there is a minimum greater than £50,000 equity requirement for each individual property being used to support Interest Only lending.
Sale of second home/Buy to Let not yet purchased (UK) Including Holiday Lets (Commercial properties are not acceptable)	Property details. Acting Solicitor to confirm intended ownership of the second property, and details of any loans to be secured against this property prior to completion (Property valuation and land registry search carried out by us). See Sale of Second Home/Buy to Let details below.	We will verify the intended ownership of the second property and its value. We will consider any loans to be secured against the property and the equity that will be available in the property with the amount of Interest Only lending required.	Equity within the property must be over £50,000. We will use 80% of the current equity value of the property to support Interest Only lending. Please note that there is a minimum greater than £50,000 equity requirement for each individual property being used to support Interest Only lending.
Stocks & shares (Only UK - based investments quoted within the FTSE index held in sterling will be permitted.)	Share valuation/and or number of shares on date of assessment. Share statement or share certificate dated within the last 12 months.	We will compare the value of the shares with the amount of Interest Only lending required, considering the remaining term of the mortgage and future market volatility.	See - Stock & share ISA.
Stocks & Shares ISA (Only UK - based investments quoted within the FTSE index held in sterling will be permitted.)	Copy of latest investment statement dated within the last 12 months.	We will compare the value of the Stocks & Shares ISA with the amount of Interest Only lending required, considering the remaining term of the mortgage and future market volatility.	We will only take 80% of the current value of the investment into account and the current value must be greater than £50,000.
Unit trust or OEIC (UK)	Copy of latest investment statement dated within the last 12 months.	The current value will be compared to the amount of Interest Only lending requested, considering the remaining term of the mortgage and future market volatility.	We will only take 80% of the current value of the investment into account and the current value must be greater than £50,000.
Pensions (UK) (State pensions are not accepted as a repayment vehicle)	Copy of latest projection statement dated within the last 12 months.	Copy of latest projection statement dated within the last 12 months and must show the projected tax-free lump sum value.	To back an interest-only mortgage, we will only take a maximum of 60% (maximum of 80% for final salary pension schemes) of the projected tax-free lump sum and the projected tax-free lump sum must be greater than £100,000. Pensions, including final salary pension schemes can be combined for each customer to meet the minimum. The minimum projected tax-free lump sum of £100,000 applies to each customer. When using a personal pension, and a final salary pension scheme we will only take the appropriate % for each pension type to support the interest only lending.
Investment bonds (UK)	Copy of investment statement dated within the last 12 months.	We will compare the value of the bonds with the amount of Interest Only lending required, considering the remaining term of the mortgage and future market volatility.	We will only take 80% of the current value of the investment into account and the current value must be greater than £50,000.
Sale of the security property (UK)	A signed ‘Sale of the security property – Customer Declaration’. Please refer to Interest Only Criteria - Sale of the security property for more information.	Subject to meeting criteria. Please refer to Interest Only Criteria - Sale of the security property for more information. We will require all applicants named on the mortgage to return a signed and dated ‘Sale of the security property – Customer Declaration’.	Mortgage Pro will assess the application meets criteria. The minimum equity remaining in the property must be £300,000, based on the valuation. We will check all applicants named on the mortgage have signed and dated the declaration.

All repayment vehicles must be based in the UK and paid in sterling.
The repayment vehicle must be in the name of the applicant(s) named on the mortgage. If a third party is named on the repayment vehicle this would be unacceptable:

For joint applications, it is acceptable for the repayment vehicle to be in the sole name of one of the applicants (except where the repayment vehicle is ‘sale of the security property’).
For sole applications, it is not acceptable to use a repayment vehicle that is in joint names.

More than one repayment vehicle can be used to cover the total interest only amount (except where repayment vehicle is ‘sale of the security property).
The applicant can use a combination of acceptable repayment vehicles combined together between all applicants named on the mortgage to reach the minimum £50,000 acceptance criteria:
- Stocks and shares ISA
- Unit trust or OEIC
- Investment Bonds
- Stocks and shares

Important points on the assessment:

The repayment vehicle(s) must be sufficient to support the lending and cover the full amount (including any product fees being added) to be conducted on an Interest Only basis.
We are not providing advice on your applicant's repayment vehicle(s) or making any guarantee that their repayment vehicle(s) will be sufficient to repay the outstanding balance (capital) at the end of the mortgage term.
Your applicant should review their repayment vehicle(s) regularly during the term of their mortgage to make sure it is on track to repay the outstanding balance.
Periodically, we will ask your applicant to provide evidence of their repayment vehicle(s). If your applicant is unable to satisfy us that their repayment vehicle(s) remains on track to repay the outstanding balance on their mortgage, we may ask your applicant to transfer some or their entire mortgage onto a capital and interest repayment basis.
Please remember it is your applicant's responsibility to ensure they have sufficient funds to repay their outstanding balance at the end of the mortgage term. If they are unable to do so, their home may be repossessed to repay the outstanding balance.
Maturity dates will be requested for each applicable repayment vehicle.

Sale of Second Home/Buy to Let details

Where the applicant’s repayment vehicle is sale of a second home (including Holiday Lets) or a Buy to Let (including Business Buy to Let and Consumer Buy to Let) you will need to complete the ‘Interest Only - Sale of background property’ form. This can be found in Guides and Forms .

Where the second home/Buy to Let property has a mortgage secured on it, the applicant will need to provide a copy of their most recent mortgage statement dated within the last 12 months. This is not required if the mortgage is held with TSB.

The completed Interest Only - Sale of background property form and mortgage statement (if applicable) must be uploaded to Mortgage Pro.

If the property has not yet been purchased, we will require a letter from the acting solicitor prior to completion to confirm the intended ownership of the property and confirm if any lending will be secured against it.