The maximum loan to value allowed on an interest-only basis is 75%. Where sale of property is used as the repayment vehicle, clients can borrow up to 75% LTV on residential mortgage, however this must be made up of a maximum 50% LTV in interest only. After the interest only element of the lending, customers are required to have £300K of equity in the property.
The minimum loan size for new Interest Only applications is £200k (£200k in aggregate for Further Advances) however existing Barclays mortgage customers looking to Rate Switch on a like-for-like basis the minimum loan size requirement will not apply.
The maximum term for an interest only mortgage is 25 years and cannot extend into retirement.
The maximum income multiple applicable to Interest only mortgages is 5.0x (please see the Income Multiples section of our Lending criteria for full policy details).
There is a minimum income criteria required to be eligible for interest-only borrowing (including part and part borrowing):
- Sole application – the applicant must have a gross income of at least £75,000
- Joint application – one applicant must have a gross income of at least £75,000
- Joint application – where no individual income is over £75,000, joint gross income must be at least £100,000
Income must meet lending standards requirements with regards allowable gross income types i.e. all allowable income types not including any annualised performance bonus paid at the discretion of any employer.
Given the importance of the minimum income criteria, and to protect your customers, please ensure that the minimum requirements are met – particularly where a customer is at the margins of income threshold.
Debt consolidation is not allowed for existing or new interest-only borrowing. The only exceptions to this being where an existing customer has a drawn mortgage reserve balance and wants to consolidate this, or where a customer wishes to add an ERC to the balance of the mortgage when remortgaging to us from a competitor.
The Barclays Group requires all customers who take an interest-only mortgage to have in place a repayment plan for their loan on completion of the advance. Unless using sale of property to be mortgaged, we require the repayment vehicle to have been in place for 12 months. The Barclays Group will consider one, or a combination of the following as acceptable repayment plans for interest only mortgages:
- An existing endowment policy
- An existing stocks & shares ISA
- An existing (minimum 12 months) share, unit, or investment trust (professionally managed)
- Sale of mortgaged property
Where your client wishes to use any other method of repayment to repay the interest-only amount other than the acceptable repayment plans detailed above, this is not acceptable. While it will be the customer’s responsibility to maintain the repayment strategy throughout the term of the mortgage, as a responsible lender, it is important for us to ensure all interest-only mortgages are supported by an acceptable repayment strategy which will be sufficient to cover the interest-only mortgage on maturity.
Part and Part Borrowing – where sale of property is to be used as the repayment strategy for interest only borrowing a Maximum LTV of 75% applies subject to any interest only borrowing not exceeding 50% LTV. In addition, at the outset, there must be a minimum of £300k equity (this includes any capital & interest borrowing) after accounting for any interest only lending amount. E.g. £600K property (based on lower of valuation and purchase price); maximum interest only element is £300K (50%) with a maximum £150K on capital & interest repayment (total LTV 75% with £300K equity once the capital & interest element is repaid).
Transactions at Undervalue – eligibility must be based on the actual purchase price and not the property valuation
Existing interest only customers
Existing interest only customers wishing to borrow additional funds or port must meet the current lending standards relating to interest only. This includes meeting the minimum income threshold. Existing customers who do not meet current lending standards for interest only would need to switch their repayment type to capital and interest