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Interest-Only Mortgage for First-Time Buyers

Can you apply for an interest-only mortgage as a first-time buyer - and, if so, what deposit will you need, and what rates might you expect to pay?

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2024-06-15
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Interest-Only Mortgage Options for First-Time Homebuyers

As a first-time buyer, the world of mortgages and borrowing can be daunting - with interest-only options an ideal for new buyers who expect to have sufficient funds to repay a mortgage balance in the future but need to manage their cash flow.

While interest-only mortgages for first-time buyers are a fairly specialist product, they are available in the right circumstances.

Here we'll explain what products are on the current UK lending market, and how to apply for interest-only lending successfully.

Are There Interest-Only Mortgages for First-Time Buyers?

Potentially, but working with a specialist broker is likely to be vital. Only a small number of niche providers will offer this product, with some specific criteria you'll need to meet.

Interest-only mortgages are themselves rare, so adding into that a new buyer makes it a higher-risk prospect than most mainstream lenders are comfortable with.

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about your mortgage

Based on your yearly income,
you may be able to borrow

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Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.

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Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.

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Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.

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Why Look for First-Time Buyer Interest-Only Lending?

The main benefit to interest-only lending is that the monthly mortgage payments are significantly lower - since they only constitute interest and do not include any element of capital repayment.

Most first-time buyers use an interest-only mortgage for a period while they build up their income, and then remortgage on a repayment product.

As an example, if you purchase a home at age 30, on an interest-only basis, you could switch to a repayment mortgage in ten years and still have plenty of time to repay on a standard 25-year term before retirement.

How Do I Quality for a First-Time Buyer Interest-Only Mortgage?

With only a few lenders to apply to, the eligibility criteria are relatively rigid:

  • Deposit minimum is usually at least 25%.
  • Annual income over £50,000.
  • Stable repayment vehicle other than an eventual property sale.

How Crucial is the Repayment Vehicle to a First-Time Buyer Interest-Only Loan?

The repayment strategy - how you will repay the original mortgage loan value at the end of the term - is crucial.

Also called an exit strategy, a buyer will need to have robust assurances that you will be able to make the monthly mortgage repayments and that you aren't relying on tentative assets or investments where there isn't a good enough guarantee of growth. Also, you can pay back the full amount that you've borrowed at the end in one lump sum.

If you need advice about a repayment vehicle for only the interest of the mortgage, give the team a call on 0330 304 3040.

Are Interest-Only BTL Mortgages Available to New Landlords?

Buy to let mortgages are often interest-only traditional repayment mortgages so this scenario is more simple than finding interest-only lending for a first-time residential property buyer

You will usually need:

  • 20% deposit or higher.
  • Trading history or a stable income stream.
  • To propose a property with good rental income prospects.

Many high street lenders look for applicants with landlord experience. Still, the team can recommend specialist sector lenders who will consider buy-to-let interest-only mortgage applications from investors new to the property market.

Are There Other Options Instead of a First-Time Buyer Interest-Only Mortgage?

There are - and while interest-only mortgages might be attractive in terms of the lower monthly cost, the stumbling block is usually being able to offer a repayment vehicle that offsets the risk to the lender.

As an alternative, you could apply for a repayment mortgage, but over a longer-term.

If you took out borrowing for longer than the standard 25-year term, you would reduce your monthly repayments, while not being in a difficult position at the end of the period.

Some lenders will offer a 30-year mortgage, and others will go as high as 40 years, making the affordability criteria much more comfortable to meet.

Is It Likely that New Interest-Only First-Time Buyer Mortgages Will Be Launched?

Probably not - while interest-only first-time buyer mortgages used to be quite common, they are now very much a niche product for those on a high income, and with at least a 25% deposit.

This causes a challenge for first-time buyers, with it being a struggle to get on the property market. Therefore, there is an argument that new products are required to support first-time buyers.

In the meantime, your best opportunity is to contact an experienced broker who can navigate the market for you, and make independent recommendations on the most advantageous products.

Is Help to Buy Available on Interest-Only Mortgages?

Unfortunately not - Help to Buy only applies to repayment mortgages.

If you're looking for first-time buyer support and are interested in interest-only lending, give the team a call, and we'll run through the options.

Independent Advice Around First-Time Buyer Interest-Only Mortgages

We work with you to understand your borrowing objectives and identify the right lenders who offer suitable capital repayment mortgage that provides a competitive mortgage term.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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