I recently secured an interest only debt consolidation mortgage of £1m. My client in this instance was an insurance underwriter earning £260,000, with a bonus which almost doubled his salary. His property was valued at £2m.
He already had a mortgage against this property, but on a bad rate. He was looking to remortgage on interest only to get a better rate but also in order to consolidate his debts.
Although there were no problems with affordability, there were a couple of tricky points for me to take into consideration. Lenders generally run a mile from interest only loans for debt consolidation, preferring the mortgage to be on capital and interest. Moreover, my client planned to make his repayments by periodically downsizing, a method which many lenders see as shaky; there is always a chance that property prices will fluctuate, in which case they could lose money.
Of the £1m he wanted, there was to be £100,000 of consolidated debt and £650,000 to repay his existing mortgage. There was £250,000 left over, with which he planned to purchase a buy to let. Most lenders are unwilling to part with such a sum unless the borrower already has a specific property in mind. My client hadn’t yet found a property he liked, and didn’t want to feel rushed while he was searching.
There were a few complications and the case needed to be well-structured, thoroughly thought out and pitched to exactly the right lenders in order to get the result my client wanted.
After a lot of searching, I found a lender willing to make an exception for him. I secured a total interest only loan of £1m at a highly competitive 2-year fixed rate of 2.19%. The loan was finalised within a month of my first conversation with the client.
Best of all for my client, the mortgage we secured was offset. This meant that, while he was looking for a buy to let property, he could put the £250,000 into a bank account linked to his mortgage, and was only charged interest on the remaining portion of the loan. His search was therefore unconstrained by time pressures, which was a big relief and an excellent result.