After the financial crash of 2007, almost all interest-only mortgage lending was withdrawn to reduce risk for the banks. However, over the last decade, the availability of interest-only loans has increased, albeit with increased levels of affordability criteria.
It can be especially difficult if you’re looking for a large interest-only mortgage, as the loan to value (LTV) will also be capped. This is frustrating for high net worth clients, who are typically looking for loans well above £1million.
However, a good high net worth broker can help. Enness Private Office can negotiate with a wide range of lenders on your behalf, or even look at structuring your loan so that it is primarily on an interest-only repayment basis, but includes a small element of capital repayment as well, allowing you to take out a higher loan to value mortgage.
What are the benefits of an interest-only mortgage?
An interest-only loan can provide you with flexibility, keeping your monthly payments lower. This is ideal for self-employed clients, for example, who may pay themselves a lovely monthly salary or pay themselves in dividends.
Another key benefit can be found in cost savings and interest-only mortgages are a good option for clients who have a complex and irregular income made up of variable bonuses and commissions. It can work to keep your monthly obligations low and to make bigger lump sum payments to reduce your capital when you have more money. Clients can customise their repayment schedule to suit their situation, so when they make additional payments against capital owed, this will result in lower required payments in following months as the capital they are paying interest on has decreased.
What sort of clients take out an interest-only mortgage?
Many Enness Private Office clients are keen to take out interest-only mortgage products because they prefer to maintain their liquidity on a day-to-day basis; we work with many strategic investors and successful self-employed businesspeople, who are often keen to keep cash flow high to support their business endeavours.
How much can I borrow? What rates can I get?
The mortgage you are able to take out will depend entirely on your individual circumstances, as we will most likely negotiate with a top private bank for a bespoke rate.
However, as an example, we work with a lender who will offer 80% loan to value, with 75% of an interest-only repayment basis, and 5% on a capital and repayment basis. This could significantly reduce your monthly payments, making it an ideal product for clients looking to balance a favourable rate whilst maintaining their liquidity.
However, if you have a sensible exit strategy in place, an interest-only mortgage can be a hugely beneficial product. Your ability to take out an interest-only mortgage will be calculated on your individual circumstances, so a thorough consultation will be necessary.