Interest only remortgage to capital raise in order to buy an investment property

With the recent turmoil in the mortgage markets with the majority of mortgage lenders either withdrawing or completely overhauling their interest only lending policy it is always challenging when faced with a pure interest only remortgage – especially one when the main purpose of the remortgage is to capital raise with the sole intention of buying a new investment property.

Pure Interest only residential mortgage

We have recently been tasked with the above scenario where a client required a pure interest only mortgage to buy a holiday let property in Devon. Amanda’s initial mortgage enquiry was to look at the buy to let mortgage for the new holiday let property but one of her main conditions for the new mortgage was to borrow money at the cheapest rate possible.

Better value than a buy to let mortgage deal

When the mortgage adviser took further details he found out that Amanda’s residential property was unencumbered and had sufficient equity in the property to remortgage, release the equity that was required and buy the holiday home outright in cash.

Capital raising on an interest only basis

By structuring the mortgage in this way it gave Amanda more attractive rates and lower mortgage fees than that of a holiday let, buy to let mortgage deal.

No repayment vehicle needed by the lender

The next barrier facing The Mortgage Broker was the request for a pure interest only mortgage – with no acceptable repayment vehicle in place (such as ISA, pension plan or stocks and shares). Due to the interest only request with the current lenders changing their interest only mortgage criteria the search was to find a suitable lender for Amanda.

Pure Interest only residential mortgage

In the end, a mortgage deal was found with a well known mortgage lender who were willing to offer a pure interest only mortgage – subject to the loan to value on the residential property being less than 50% and secondly there being at least £150,000 of equity remaining in the property – both of these criteria were met and the client is now awaiting confirmation from the vendor that their offer on the property has been accepted.

Low Interest rates & low fee structure

Case study reference 02/04/2012 tmblghent

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