Natwest interest-only mortgage (A complete guide)

In this brief guide, we are going to discuss the Natwest interest-only mortgage, its features and considerations before getting one.

Does Natwest offer an interest-only mortgage?

Yes, Natwest offers an interest-only mortgage for both buy to let customers and residential customers.

If you want to get a Natwest interest-only mortgage for residential purposes then you will need to do so through the Natwest mortgage advise service.

You won’t be able to get access to the Natwest interest-only mortgage on a non advised basis.

Features of the Natwest interest-only mortgage

The Natwest interest-only mortgage includes the below features:

• You cannot get a Natwest interest-only mortgage through a self-service
• You will need to have an income of at least £75,000 per year (Retained profits are excluded)
• You can only borrow up to 75% of the value of the property
• The minimum mortgage amount for a Natwest interest-only mortgage is £25,000
• You capital repayment plan will need to be approved by Natwest
• You will need to be at least 18 years of age
• The Natwest interest-only mortgage term must finish before your turn 70 years old
• You and any co-applicants must be on the mortgage and the title of the property- there is no room for a sole proprietor joint mortgage 
• You can have a maximum of two applicants for the Natwest interest-only mortgage
• There is a maximum loan to value of 75%
• If a mortgage part and part mortgage is requested then the interest-only element can only be up to 75% of the total mortgage
•  if the sale of the primary residence property is a repayment strategy, the maximum LTV available for interest-only is 50%, with the remaining 25% LTV of the loan being on a capital and interest basis
• When a joint interest-only mortgage application is made to Natwest then the eldest applicant will be used when calculating if the mortgage term will end before the applicants turn 70.
• If the NatWest interest-only mortgage is £500,000 then the maximum mortgage term will be 30 years.
• The Natwest interest-only mortgage is available t both existing Natwest customers and first-time customers.
• Natwest could contain the sale of a commercial or business premises as long as the business premises are not the customers main business premises

If the sale of your property is your repayment strategy then the following terms apply:

• The property must have at least £200,000 in equity in it at the end of the mortgage term. This means you must have a sufficient amount of capital repayment, existing equity and interest-only repayment.
• As long as the above criteria are met then your mortgage balance can be any amount up to 75% LTV
• You can only use the property as a repayment strategy for the property on which you have an interest-only Natwest mortgage and not for any other property.
• If the property is currently resided in then you must clearly state that you intend to sell it and explain how you intend to rehouse yourself and your family.

You won’t be eligible for an interest-only mortgage if:

• You plan to repay the mortgage within 3 years
• You live outside of the UK and do not have any residential rights in the UK
• You are applying with the shared ownership or Help to buy schemes
• You want to use the Natwest interest-only mortgage to consolidate debt.

What you need to be aware of before applying for a Natwest interest-only mortgage?

• You must repay the capital borrowed by the end of the mortgage.
• Your capital repayment strategy must be approved by Natwest
• You will need to provide a repayment plan before you are approved for the mortgage and at any time when Natwest requests to see one.
• You will need to keep Natwest informed of any changes to your repayment strategy as not dong this could be a breach of your mortgage contract
• If you have any concerns with the repayment strategy you must discuss them with Natwest immediately as you will need to repay any shortfall between your mortgage balance and the funds from your capital repayment strategy

Risks of the Natwest interest-only mortgage

There are several risks with getting a Natwest interest-only mortgage and you should be aware of these.  They include:

• The risk of negative equity is much greater with a interest-only mortgage than with a capital repayment mortgage. This means you could end up with a mortgage balance that is greater than your property is worth.
• The mortgage balance will not change throughout the mortgage term. This means you will pay interest on a constant mortgage balance throughout the mortgage term.
• You will usually pay more in interest than a normal capital repayment mortgage
• If interest rates change over the term of your mortgage then you will see your monthly mortgage repayments change. Interest rates could go up or down.

Acceptable capital repayment strategies for a Natwest interest-only mortgage

Below are some of the acceptable repayment strategies for a Natwest interest-only mortgage:

• Stocks & shares (traded on an authorised exchange – in or outside an ISA)  
• Investment vehicles (unit trusts, OEICs, ICVCs, endowments – in or outside an ISA)  
• Pension (UK authorised) – Money purchase scheme – 25% of current value – Final salary scheme – the guaranteed lump sum 
•  Sale of property -The property Must be in the UK. Natwest will base the value on the current unencumbered value (equity)  Where the property is not the main residence Natwest can consider up to 75% LTV on interest only.

How to apply for a Natwest interest-only mortgage?

To apply for a Natwest interest-only mortgage, you can either do so on the Natwest website or by calling Natwest on 0800 096 9527.

To see what your repayments could look like you could use an interest-only mortgage calculator.

Government schemes you miss out on

Due to the fact that you are getting an interest-only mortgage you will not be able to use most of the Government schemes below.

Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.

Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.

Government schemes are not available to you if you are getting a buy to let mortgage.

The Government schemes include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy– allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire– similar to the above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

FAQs: Natwest interest-only mortgage

In this brief guide, we discussed the Natwest interest-only mortgage, its features and considerations before getting one.

If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.