THE SCENARIO
Many of my clients are keen to secure an interest-only mortgage in order to minimise their monthly mortgage payments, but this can be problematic in the context of residential properties as it is difficult to show exactly what the exit strategy for the loan will be.
I was recently approached by a married couple looking to purchase a family home in the countryside. This stunning property was a grade II listed building valued at £2million. The husband was a banker, whose salary was significantly contributed to by yearly bonuses.
My clients were particularly looking for a full interest-only mortgage because they hoped to benefit from lower monthly payments, leaving them with more liquidity for other expenses. Securing an interest-only loan on a family home can be difficult if it is unclear where the money to repay the loan at the end of the term will come from.
OUR SOLUTION
Fortunately, as this was clearly a large family home, I was able to identify the sale of the property itself as the exit strategy—the couple would downsize once their children had left home.
However, whilst a number of lenders will allow the client to downsize the property at the end of the term, most will still require a portion of the loan to be on a capital and interest repayment basis, with the rest on interest-only. However, this wasn’t an attractive option for my client because keeping monthly payments low was the priority.
I therefore clearly outlined an overall view of my client’s wealth to illustrate they could afford the mortgage even if it was on a capital and interest repayment basis. This reassured the lender that my client did not have affordability issues, and they were able to offer the full loan on an interest-only basis at a competitive rate of 1.74% fixed for 5 years.
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