Here is the latest release from Gen H (Generation Home). To view our products or for more information and tools you need to control and develop your business, visit our website here or contact the Brilliant Solutions team.
Announcement
Unlocking home ownership with interest only mortgages
Affordability challenges remain one of the biggest barriers for first-time buyers purchasing a property that is suitable for them – particularly when many would want to make the most of their first-time buyer status for stamp duty purposes.
Even if they can borrow what they need, contending with the monthly repayments can be offputting for prospective buyers – especially when compared with their rent payments.
When we think of interest only mortgages, we often think about next-time buyers, higher earners who might want to invest their cash elsewhere, or perhaps borrowers with lumpy income, like self-employed people. But interest only can help solve the affordability challenges that first-time buyers come up against, too.
With an interest-only mortgage, first-time buyers can borrow around 15% more than a capital and interest repayment mortgage on average. And they can keep their monthly payments up to 20% lower each month, too.
Plus, their mortgage amount is fixed; this means the mortgage will almost always become more affordable as their income grows either with inflation or career progress. It means that first-time buyers are able to lock in today’s house prices, finally helping them break out of the rental cycle, the never-ending deposit trap, and growing affordability challenges as the gap between income and house prices continues to grow. And if all goes well, they may be able to remortgage onto a typical repayment mortgage later on – if they want to.
Making interest only products accessible to first-time buyers is the key. Gen H have interest only products up to 80% LTV, with part and part going products all the way to 95% LTV. We require a minimum household income of £50k and £200k equity at the end of the mortgage term. For a growing number of borrowers, these products could be perfect – and this could open the door for a lot of people currently locked out of homeownership.
For example:
Jacob and Leah, both in hospitality, moved to the UK a few years ago and were ready to buy their first home in London. Their income varies month to month with overtime – and rather than stretch to their limit, they wanted a mortgage that would still be manageable on a quieter month. This also meant that if they decided to have a family, and Leah or Jacob took time off work, they’d be better insulated from repayment-related financial shocks.
Gen H’s part and part mortgage let them structure a quarter of their loan as interest only, lowering their monthly payments and building in room to breathe if their income dipped.
Here’s how it worked out:
Applicants: Jacob, 40 (hospitality) and Leah, 35 (hospitality)
Combined income: £80,200-£100,000 (incl. overtime)
Deposit: £40,000 (10%)
Property value: £400,000
LTV: 90%
Interest-only portion: 25%
Rate: 5.79% (2 year fix)
Term: 34 years
Repayment vehicle: Sale of the property
It’s a good reminder that interest only isn’t just for buyers who are stretched to their limit, or wealthy borrowers looking to maximise returns. Sometimes it’s about giving a client a mortgage that flexes with them – especially when their income doesn’t look like a typical nine-to-five salary on paper.
