If you are sitting on an interest-only mortgage with a low tracker rate, you might be in for a double shock.
Everyone expects interest rates to rise at some stage. Many clients will then look to remortgage. But when they do, the monthly repayments are likely to be much higher, as lenders restrict the ability to borrow on an interest-only basis.
To make matters worse, Santander announced recently that they will not accept applications for interest-only mortgages for over 50% of the property value, which is low. And other lenders are also restrictive – lending a maximum of 66%, or at most 75%, loan to value.
Another problem is that many interest-only lenders also require that the equity is over £150,000. (Equity is the amount of money that you would have left if you sold your property and paid off the mortgage).
Case study: interest-only remortgage
Let’s say you have a £250,000 property with a £150,000 interest-only mortgage, and as the rates rise you want to remortgage to find a better deal.
You would not be able to remortgage interest-only with Santander because you would be borrowing 60% loan-to-value.
And although this would be a LTV below 66% or 75%, the following lenders also would not (currently) lend to you: Nationwide, Woolwich, Cambridge Building Society, to name just three. That’s because you would fall short of £150,000 of equity.
The double whammy awaiting interest-only borrowers is the rise in rates combined with an increase in monthly repayments – as many of them will not qualify for interest-only and will have to start repaying capital as well.
But all is not lost. Contact Limetree for a free chat about your mortgage options. We are truly independent brokers who find the best mortgages from across the whole market, and may be able to find you a way to continue with interest-only.