Virgin Money has highlighted its current interest-only mortgage criteria, reinforcing the options available to borrowers who have a suitable strategy in place to repay the capital at the end of their mortgage term.
Interest-only mortgages can be a useful option for certain borrowers, particularly those with larger mortgages or established assets and investments. However, unlike a standard repayment mortgage, the capital borrowed isn’t gradually repaid through the monthly mortgage payments, making a credible repayment strategy essential.
What Are Virgin Money’s Interest-Only Mortgage Criteria?
Virgin Money currently requires a minimum income of £75,000 for sole or joint applications for its interest-only offering.
Interest-only mortgages are available for both purchases and remortgages, although they are not currently available to first-time buyers.
The lender allows a maximum mortgage term of 40 years, with a maximum age of 75 years and 364 days at the end of the term. Different age restrictions apply where downsizing is being used as the repayment strategy.
For borrowers looking for a fully interest-only mortgage, Virgin Money currently allows:
- up to 75% loan-to-value (LTV); and
- a maximum loan of £1 million.
Virgin Money also offers part-and-part mortgages, where some of the borrowing is arranged on an interest-only basis and the remainder is repaid on a capital-and-interest basis.
Depending on the property’s value, these can potentially be available up to 85% LTV, although no more than 75% LTV can sit within the interest-only portion of the mortgage.
How Can You Repay an Interest-Only Mortgage?
One of the most important considerations with any interest-only mortgage is how the outstanding capital will eventually be repaid.
Virgin Money accepts a range of evidenced repayment strategies, subject to its individual criteria.
These include:
- downsizing and selling the mortgaged property;
- selling another property;
- using a pension tax-free lump sum;
- investments such as ISAs, OEICs, unit trusts and stocks and shares;
- FTSE 100 share portfolios; and
- qualifying endowment policies.
The requirements differ depending on the strategy being used.
For example, where downsizing is the proposed repayment vehicle, Virgin Money requires a maximum 65% LTV and at least £300,000 of equity at the outset.
Where investments are being used, their value must currently cover 100% of the interest-only borrowing and they must have been held for at least 12 months.
All repayment vehicles must also be held in sterling.
Could Interest-Only Be Right for You?
Interest-only can provide lower monthly mortgage payments than an equivalent capital repayment mortgage because you’re only paying the interest charged on the borrowing each month.
But those lower monthly payments come with an important responsibility: the original capital still needs to be repaid.
That’s why interest-only shouldn’t simply be viewed as a way of reducing monthly mortgage costs.
For the right borrower with a robust repayment strategy, it can form part of a carefully structured mortgage. For others, a traditional repayment mortgage, or a combination of repayment and interest-only borrowing, may be more appropriate.
This can be particularly relevant for borrowers arranging larger mortgages, where the difference between repayment structures can have a significant impact on monthly cash flow.
Speak to Oportfolio About Interest-Only Mortgages
Interest-only criteria can vary considerably between mortgage lenders, particularly when it comes to income, loan-to-value, maximum loan sizes and acceptable repayment strategies.
If you’re considering an interest-only mortgage, remortgaging an existing interest-only loan or want to understand whether part-and-part borrowing could work for your circumstances, Oportfolio can help you explore the options available.
Speak to one of our mortgage advisers to discuss your circumstances and repayment strategy.
