Up to 95% LTV | IO portion up to 80% LTV | No shared ownership faff
Interest only has long been considered reserved for the wealthy. But it’s also a powerful tool to help first-time buyers and movers on average salaries maximise their affordability – especially when it comes to part and part.
What makes part and part mortgages so special is their flexibility.
Buyers who can’t quite get the loan amount they need can add an interest only portion to maximise their affordability. Conversely, buyers who want an interest only mortgage but don’t quite have the full repayment strategy sorted can top up with a capital repayment portion to make the numbers fit.
Here’s how it works:
- Buyers bring at least a 5% deposit
- They take up to 80% of their mortgage on an interest only basis
- They take the remainder of the mortgage on a capital repayment basis
- They own 100% of their home from day 1 and can overpay as normal to reduce their capital balance
Buyers will need a household income of at least £50k.
Now: who is this for? Let’s say a customer is renting, has a small deposit, and can’t currently afford a standard capital repayment mortgage for the property they want.
To date, their options were:
- Carry on renting (so, paying their landlord’s interest only mortgage)
- Get family support (if they’re lucky)
- Try New Build Boost (if they’re buying a Persimmon or Charles Church new build)
- Go in on Shared Ownership (and all its costly, frustrating downsides)
But now, there’s a better option.
With the advice of a qualified mortgage broker, part and part mortgages could unlock homeownership for thousands of buyers today.
Worked examples
Let’s see how part and part works in action.
Buying a first home with part and part
Marcus and Julie want to buy a flat in St Albans for £400,000. They earn £35,000 annually each as teachers, and have managed to save a £20,000 deposit between them.
Unfortunately, they can’t quite afford the £2,157 mortgage payment – or at least the bank tells them they can’t, even though they’re paying £2,000 in rent currently.
By putting 50% of the mortgage on interest only, they reduce their monthly payment to £1,939. They spend less on housing costs monthly than renting, and the mortgage is now affordable.
Over time, as they earn more money, they can overpay their mortgage to reduce that capital balance, or thanks to the equity they’ll build and house price appreciation, in 5 years’ time, they could reasonably remortgage to a full capital repayment mortgage.
Equally, they may choose to stay put and use the £200,000 equity they’ll have to downsize to a less expensive area or property in 30 years’ time.
Either way, they’re no longer stuck paying their landlord’s interest only mortgage – and they’re finally able to settle into a home of their own.
Escaping shared ownership with part and part
- Emily took on shared ownership 10 years ago, when she was just beginning her career in nursing. Since then, she has specialised in pediatric care and her salary increased to £50,000.
- The rent she pays to the shared ownership provider has gone up by 3% every year in line with inflation.
- But thanks to house price appreciation over the years, she’s built 10% equity in her property – despite having to give away the lion’s share to the shared ownership provider.
- However, she still can’t afford the £2,051 95% LTV monthly capital repayment mortgage payment.
- But by putting 40% on interest only, this monthly payment shrinks to £1,868 and becomes affordable – and still leaves £200,000 equity for downsizing at some later stage if required.
- Emily now owns 100% of her property and will benefit from 100% of further equity growth as well as the mortgage payments.
- Interest only for first-time buyers can sound like a bad idea. But this isn’t about lax lending, or putting aspiring homeowners at risk. It’s about broadening our collective toolkit so that we can serve more people fairly and responsibly.
Ready to see how part and part could support your clients?
https://intermediaries.generationhome.com/
https://app.generationhome.com/intermediaries/affordability-calculator
Give us a call: 0330 808 1791
Email us: broker@generationhome.com
Join our part & part webinar on 30th October: https://generationhome.zoom.us/webinar/register/WN_AWt8pFScRT-pRG3Lg4GYGw#/registration
Thanks for reading! We’re excited to bring this to market with you.