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Part Repayment, Part Interest Only Mortgages

Everything you wanted to know about interest only, part repayment mortgages

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By Pete Mugleston   Mortgage Advisor

Last updated: 3rd December 2018 *

A Guide to Part-and-Part Mortgages

We receive a lot of enquiries surrounding part interest only and part repayment mortgages, or “part and part mortgages” as they are often referred to. These types of mortgages can be a good flexible option and may appeal to those who have capital tied up in other investments that they plan to cash in and use to pay off their mortgage.

Before you make a decision as to whether a combined repayment and interest only mortgage is right for you, read this article!

We will be covering:

What are part repayment and part interest only mortgages?

So, how does a part and part mortgage work?

Essentially, these plans are an interest-only and repayment mortgage hybrid - a “middle ground”, combined solution. Instead of paying back the full loan plus interest over an agreed term as you would with a repayment plan, you only repay the interest owed and an agreed proportion of the mortgage each month.

This means that when the term comes to an end, you will still have some remaining capital to repay on the property.

Is there a part and part mortgage calculator I can use?

There is no “one size fits all” approach to interest only and capital repayment mortgages; the amount of interest / loan you pay each month (and therefore how much capital you have outstanding at the end of the period) will be discussed and agreed upon between you and your lender, and it will based on your individual situation.

Where can I get a part and part mortgage comparison?

Your best option is to talk to one of the advisors we work with. They are experts in this area and can help you find the best part and part mortgage deals.

That being said, most lenders will have set requirements as to what they are willing to accept before lending for this type of mortgage.

This is usually:

  • The property’s loan to value (LTV)
  • The sum total of the repayment vehicle/plan/strategy
  • Whether the repayment vehicle is acceptable or not
  • As well as other influencing factors - we’ll cover these in more detail later on.

Why should I get a part and part mortgage?

Part repayment and part interest mortgages can be an ideal option for those with a valid repayment plan, wanting lower monthly payments than you’d expect from a conventional repayment mortgage.

It also means you have less capital to pay off at the end of the term than you would if you’d have taken out a purely interest-only mortgage.

Am I eligible for a part interest and part repayment mortgage?

Part and part mortgages are, by some lenders, perceived as riskier than conventional full repayment mortgages, and not all repayment plans are acceptable with everyone.

As a result, there may be fewer options available than if you were on a full repayment basis, especially if there are other considerations with your application that can impact eligibility.

The main considerations for qualifying for a part and part residential mortgages are as mentioned above:

  • The sum total of the repayment vehicle/plan/strategy
  • Whether the repayment vehicle is acceptable or not
  • The property’s loan to value (LTV)

Then the usual factors that play a significant part in any application, such as:

  • Credit history
  • Income and affordability
  • The property type
  • The applicants age
  • The purpose for the funds (if a remortgage)

Repayment plans for part and part mortgages

You will need to have a plan in place to repay the outstanding capital - this is referred to as setting up a “repayment vehicle”.

There are a number of ways you can do this, but all mortgage providers will require solid proof that your chosen repayment vehicle is reliable (unless it is a buy to let property, as discussed later). They need to be confident that you will be able to make the remaining capital payments.

Accepted repayment methods vary from lender to lender, with the most common types including:

  • Sale of a second property
  • Stocks and shares
  • Endowment policies
  • Stocks and Shares ISAs
  • Investment Bonds
  • Pension

Even if your plan appears solid from the outset, your lender will require evidence of your chosen repayment plan. If there is no way of providing tangible proof as to the reliability of your investment, it is unlikely to be accepted as suitable repayment plan.

How much can I borrow on part interest-only mortgage against my repayment plan?

This depends on the plan. In general, a lender will only lend based on the current value. So, if you have no cash currently and are planning on saving £500 a month for a few years (say 5), this will not be suitable to achieve a £30k repayment plan and interest only mortgage.

If however, you have £30k in savings already, then they may consider lending you £30k on interest only. If you need to borrow £100k in total, then you’d borrow £30k on interest only and the remaining £70k on a repayment basis – hence the name part and part.

If you own another property to sell, some lenders will consider 100% of the equity, so if it’s worth say £200k, and you have a £50k mortgage, the lender will offer you £150k on interest only basis.

It’s also worth noting here that there are certain repayment vehicles that are not usually accepted by lenders, such as relying on your property increasing in value or the promise of receiving an inheritance.

Whatever your plan, if you want to know if it is accepted by lenders then make an enquiry and one of the experts will be in touch ASAP.

How do I evidence a repayment plan for a part interest only mortgage?

Although this will vary by lender, this table will give you a good idea as to what evidence may be expected from you for each of the above methods:

Repayment Vehicle Evidence Required
Sale of a second property
  • Property details
  • Confirmation of ownership
  • Evidence of the sum of any mortgage debt outstanding
Stocks and Shares
  • Share certification
  • Nominee account statement / confirmation from a recognised broker featuring evidence of shareholdings + valuation
Endowment policy

Latest projection / statement

(dated within the last 12 months)

Stocks and Shares ISA
Investment Bond
Pension

How much can I borrow for an interest only and repayment mortgage?

Many lenders don’t tend to publicise a specific maximum sum they’re willing to offer those seeking a part and part mortgage as this can differ from one individual to the next. Instead they point borrowers to their affordability calculators which will only calculate affordability for their products.

This understandably, can mean finding the maximum loan as a customer is a lengthy and challenging task, given the sheer number of lenders and criteria to source through.

How much you can borrow depends on numerous factors such as:

Part interest only, part repayment Loan to Value (LTV)

One of the most defining factors lenders will look at is how much deposit you have saved. The LTV of your property will have a large impact on the rates you’re offered, as well as how much you can borrow. For this type of plan, lenders will typically look for a minimum LTV of 85% (15% deposit). However, if your LTV is lower (more in the realms of 75%+) you will be looked at far more favourably by a wider range of providers.

Affordability assessments for part interest only part repayment mortgages

Mortgage providers will want to know how much disposable income (after deducting all outgoings) you have before establishing how much you can borrow on a mortgage.

Generally speaking, the higher your income and lower your debt-to-income ratio is, the more money you should be able to borrow, subject to certain caps on lending that most lenders will enforce.

Income multiples offer a general and simple rule of thumb for the maximum loan you’re likely to qualify for, where most lenders will cap lending at 3-4x joint income, some will consider up to 5x income, and a handful can consider 6x income in the right circumstances.

For those looking to release equity and borrow more against their property, secured loans are another consideration, as these lenders can be more flexible and offer over 10x income.

Your current employment status is an additional risk factor; as those who are self-employed can be regarded by some lenders as higher risk than those in “traditional” full time employment, as lenders want evidence that you have a stable form of income.

For a “normal” repayment mortgage plan, most lenders require a minimum of one year’s accounts; for a scheme such as a part and part mortgage, the number of lenders may be limited, and so there may be fewer lenders considering newly self-employed borrowers.

What are lender maximum loan sizes for Part interest only part repayment mortgages?

All lenders have a set policy on their maximum and minimum loans in general, for instance many cap loans to £500,000 or £750,000, some will lend up to a maximum of £1,000,000, a few will consider up to £2,000,000, and a handful will lend over £2,500,000.

Part repayment, part interest only and bad credit issues

For part interest, part repayment plans, as with any mortgage, lenders need to be confident that you will be able to keep up the capital repayments throughout the term of the mortgage. Generally speaking, if you have a history of bad credit you will not be looked at favourably by most lenders.

Thankfully there are lenders that can consider the following credit issues:

  • Low credit score
  • Late payments
  • Defaults
  • County Court Judgements (CCJs)
  • Mortgage Arrears
  • Debt Management Plans (DMPs)
  • Individual Voluntary Arrangements (IVAs)
  • Bankruptcy
  • Repossession

Depending on the type and severity of the issue(s), bad credit history may limit the amount of lenders who are willing to offer you a loan, you may need a larger deposit, and the rates you’re offered may not be as competitive as they would be for those with clean credit history.

However, if the instances were minor and happened a long time ago, they are likely to be more lenders to consider your application.

Age limits for part interest only mortgages

While most mortgages providers don’t typically have an issue lending to young buyers over 18, (depending on credit history and property LTV), many mainstream lenders originally had a cut-off age around the 70 mark.

However, due to the high property prices alongside other factors nowadays, many people are buying a home later in life. People are also more prone to opt for a mortgage term longer than the conventional 25 years to help ensure monthly repayments are more affordable. Therefore, lots of mainstream lenders are now willing to offer part interest only / repayment mortgage schemes for 30-35 years for many borrowers, and into later life, with many considering those going into retirement, and some willing to go over 70, with a few willing to lend with no limit.

What happens if I want to switch my mortgage repayment type?

As we all know, life can be unpredictable, and if you have a change in circumstances you may wish to make new arrangements for your mortgage plan. The most common scenarios tend to be:

Switching from a part and part to full interest-only mortgage

This is certainly possible to do so, providing you have evidence of an acceptable repayment vehicle to cover the additional amount borrowed on interest only.

If your property has increased in value, and now holds enough equity, some lenders may be willing to lend the full amount with the sale of the property (to downsize) as the plan.

Most part and part mortgage providers are not happy with this repayment strategy, some will consider if there is at least £150k equity, and a few are happy if there is £100k equity or more, in the right circumstances. You can of course use this to supplement other repayment vehicles you may already have in place.

Get in touch and we will refer you to an expert to review your options and give the right advice!

Switching from a part and part to full repayment mortgage

If you decide you’re in a position to switch from a part and part to a full repayment mortgage plan, you must be confident that you are able to afford the higher monthly payments, and of course, meet the lender’s affordability requirements and provide sufficient evidence to back up your application.

Most lenders will let you switch to a repayment mortgage at any time if you plan to do this with your current lender, but bear in mind that switching to a repayment scheme will likely mean higher monthly repayments, so it needs to be affordable

One option you might have, if your mortgage allows overpayments, is to leave your interest only mortgage in place and simply overpay every month, to the same amount you’d need to pay as if it were already a full repayment mortgage.

Switching to part and part from full interest only

If you’ve been on a full interest-only mortgage plan and feel you’re able to increase your monthly payments but not enough for a full repayment, your provider may allow you to switch to a part interest only, part repayment plan, and if not, you may be able to refinance to a new lender who will.

What if I can’t afford to repay my part interest only mortgage?

If at any point during your mortgage term you feel as though you’re likely to struggle to pay off the capital at the end of the part interest only part repayment mortgage, the quicker you act, the better. The longer you put it off, the fewer options will be available to you, so it’s best to seek assistance as soon as possible.

To help avoid the situation getting worse, ask yourself the questions:

Am I able to remortgage to a better rate?

Provided you haven’t defaulted on any of your monthly payments so far, you may be able to remortgage the property at a better rate. If there is historical evidence that you have kept up with your payments on time, there may be more providers willing to lend to you, and rates may be cheaper. If the monthly cost is more affordable you might even be able to switch to a full repayment mortgage, and in doing and / or have the option to repay the loan back over a longer period.

Can I get an extension on the term?

If you inform your lender as soon as you start having doubts surrounding your ability to pay off the remaining capital when your term comes to an end, they may allow you to extend the mortgage term to give you more time to get the funding in place.

If you’re struggling honesty is always the best policy, and the sooner you seek advice from your provider the more options will be available to you.

Over 55? You may be eligible for a lifetime mortgage

If you’re over the age of 55, you may be eligible for equity release. Whether you qualify will depend on the value of the property and the amount of equity you have, your current age and your health.

It comes down to the predicted value of the property in line with your life expectancy, as the lenders will want to know the value of the loan they provide is going to be covered by the property when you pass away or go into care and the property is sold.

If you have a part and part mortgage and think you will struggle to repay the end capital, equity release could be an option.

Part interest only and part repayment mortgages on Buy to Let properties

Interest-only borrowing tends to be the go-to option for the majority of BTL investors. Most opt to only pay back interest on their mortgage, using the cash generated from the sale of the property to repay the mortgage.

For some, this can be risky, especially if the BTL is only intended as a short term investment, due to the unpredictability of the property market. Some landlords decide to set aside some of the profit they receive from renting into a savings account so as to help pay back the mortgage at the end of the term.

That said, it is possible to get a part and part mortgage plan for BTLs, and whether a landlord investor chooses to repay the debt instead of drawing cash from the property is their own decision as an investor.

Typically, lenders will check affordability against the interest only payments, adding in the commitment to repay capital every month can, with some lenders, reduce the maximum loan they are willing to offer – most considering this choose to setup on full interest only and just overpay to the degree in which they want to pay down the balance.

Speak to an advisor with expertise in part and part mortgages

Considering the complexity of this type of mortgage plan , we strongly urge you get in touch so we can refer you to a specialist that can help calculate your eligibility and advise whether a part repayment, part interest only mortgage is right for you.

A specialist advisor will study your individual circumstances, work out the most appropriate plan to suit your needs, and give you the right advice.

For more information, call Online Mortgage Advisor on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating to enquire.

Updated: 3rd December 2018
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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