A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The mortgage market is a complex, multi-faceted arena, with diverse offerings designed to cater to various home buyers’ distinct needs and situations. Part and part mortgages are gaining prominence among these diverse offerings due to their inherent adaptability and potential advantages. As an experienced and trusted independent mortgage broker in London, Your Mortgage Experts is committed to shedding light on the complexities of part and part mortgages, offering comprehensive insights into their benefits, key considerations, and the application process.
What is a Part and Part Mortgage?
A part-and-part mortgage combines repayment and interest-only mortgages, allowing borrowers to split their mortgages into two parts. One portion pays the principal and interest, while the other solely service the interest. This structure is a hybrid of a variable rate mortgage and a repayment mortgage, offering flexibility and appeal to many borrowers.
One of the distinct features of a part and part mortgage is the degree of control it offers borrowers. Borrowers can decide how much of their loan is allocated towards repayment and how much towards interest only. This flexibility can facilitate better financial management and potentially lead to lower monthly payments, creating a less burdensome financial commitment for borrowers.
How does a part and part mortgage work?
Part and part mortgages are not standardised. It combine both repayment and interest-only methods of repaying a mortgage. The borrower chooses what percentage of the loan will be repaid under each type, typically around 80% repayment and 20% interest-only. The maximum amount that can be interest-only is usually linked to the loan-to-value ratio of the mortgage. Your lender will customise how much capital you pay off as you go and at the end. Although the specifics of a part repayment, part interest mortgage are flexible, you’ll need to repay a substantial portion of your mortgage on a repayment basis.
Paying back the interest only part
When applying for a part and part mortgage, borrowers must present a “repayment strategy” to prove their ability to repay the remaining amount. All lenders will be keen to understand your plan for repaying the outstanding balance for the interest-only component at the end of the term. They’ll want to see concrete proof of this plan.
The Nature and Value of the Property: Lenders often perceive interest-only arrangements as riskier. If the property in question is non-standard, it adds an extra layer of risk that could impact a lender’s readiness to grant you a part and part mortgage. However, specialist lenders might consider such scenarios accessible through a broker.
The Deposit Amount: A larger deposit lessens the risk for lenders. Most lenders typically accept a maximum loan-to-value (LTV) ratio of 85% when considering a part and part arrangement. Therefore, a lower LTV ratio would undoubtedly work in your favour. Like any mortgage application, the heart of the assessment is your ability to repay the amount you request to borrow feasibly. Therefore, you’ll also need to present information about your income and expenses, any existing debt, and credit history.
Benefits and Potential Pitfalls of Part and Part Mortgages
What is the benefit of part and part mortgage?
The standout benefit of part and part mortgages lies in their ability to enhance affordability, particularly for individuals with fluctuating income streams, such as IT contractors or self-employed professionals. Here are some of the key benefits of part and part mortgage:
- Lower monthly repayments compared to full repayment mortgages.
- The ability to reduce the lump sum required at the end of an interest-only mortgage term.
- The opportunity to customize the balance between repayment and interest-only portions of the mortgage.
- Flexibility in the eventual repayment of the interest-only part through overpayments or maturing investments.
- The ability to combine the advantages of both repayment and interest-only mortgages.
- Potential cost savings in the long run.
- The option to create a payment plan that suits your financial situation.
What is the pitfall of part and part mortgage?
While part and part mortgages offer several benefits, they also have potential pitfalls. Here are the list of disadvantages of part and part mortgage:
- It may take longer to repay your mortgage.
- Interest can reduce at a slower rate.
- Repayment mortgages may have less overall interest.
- There can be an outstanding mortgage balance at the end of your term.
Is it a good idea to get a part and part mortgage?
In certain situations, a part and part mortgage can be a great option, especially if you’re anticipating some sort of financial gain. You may have an investment that’s about to mature, an inheritance on the way, or even a guaranteed long-term bonus scheme through work. If you have the means to pay off the capital part of the interest-only aspect of the mortgage, you can save money on your monthly payments while still building equity in your property. A part and part mortgage also offers flexibility, allowing you to choose the split between repayment types. You can even adjust the amounts when you’re able to demonstrate that you can afford the changes. This type of mortgage can be the best of both worlds.
Determining if a Part and Part Mortgage is Right for You
Ideal candidates for a part and part mortgage
Part and part mortgages are designed to accommodate a wide range of buyers. They can especially benefit individuals with fluctuating incomes or unique financial circumstances. These mortgages offer flexibility for those navigating the somewhat complicated UK property market.
Who is eligible for a part and part mortgage?
An array of factors determines eligibility for a part and part mortgage. Every lender sets their eligibility criteria, typically evaluating aspects such as your repayment strategy, the nature and value of the property, the deposit amount, and of course, your creditworthiness. The focus of any mortgage application always remains your ability to repay the loan, making your income, expenses, existing debts, and credit history key elements of the evaluation process.
Navigating the Application Process for a Part and Part Mortgage
Preparing for your application
Before applying for a part and part mortgage, it’s essential to conduct a thorough assessment of your financial situation. This includes assembling all necessary documentation, such as proof of income, credit history, details of expenditures, and any other financial information relevant to the lender’s specific requirements.
How much deposit do you need for a part and part mortgage?
The required deposit amount for a part and part mortgage is typically at least 15% of the property value.
Lenders offering part and part mortgages
Many high street lenders, including renowned names like Skipton Building Society, Halifax, Barclays, and Leeds Building Society, offer part and part mortgages, subject to their terms and conditions. Additionally, specialist lenders accessible via a broker offer these types of mortgages, often with more competitive rates and terms.
Given the long-term nature of mortgages, changes in your financial circumstances over time are likely. In such cases, remortgaging can be an option. For instance, a remortgage can provide flexibility if your originally planned repayment strategy becomes impractical or you wish to start repaying a larger portion of your mortgage sooner than initially planned.
Switching to a repayment mortgage
Although you can certainly switch from a part-and-part mortgage to an interest-only or repayment mortgage during your loan period, it’s essential that you demonstrate the financial ability to repay the larger loan amount for an interest-only arrangement or manage higher monthly repayments in case of capital repayment mortgages. Unfortunately, this process could be slightly more complicated than expected, as conversing with a mortgage lender or mortgage broker may be necessary
The considerations when switching from a part and part mortgage to a repayment mortgage are that the monthly repayments will be higher, as the entire mortgage amount needs to be paid back over a shorter period.
Transitioning to a repayment mortgage
In such instances, the goal of remortgage often involves switching to a repayment mortgage. This approach can be beneficial when your income increases and you wish to repay your mortgage more conventionally. Moreover, if you meet all your repayments on schedule, you won’t have an outstanding balance at the end of your term. Read our guide on 5 important things to know in order to remortgage.
What happens if my income changes?
If your financial circumstances deteriorate, remortgaging might become challenging. Each time you alter your mortgage, the lender will conduct an affordability assessment to ensure you can comfortably manage the mortgage. If your finances are strained, you could fail to meet the affordability criteria. Hence, it’s crucial to proceed with caution in such situations or contact our advisors for assistance.
The Indispensable Role of a Mortgage Broker in Your Journey:
How a broker can assist
An experienced mortgage broker like Your Mortgage Experts can play an invaluable role in simplifying the application process for a part-and-part mortgage. We will guide you through every stage, help you identify suitable lenders from a vast network, and provide valuable insight into the specific underwriting requirements of each lender.
Why choose an independent mortgage broker?
An independent mortgage broker can evaluate your unique circumstances and offer tailored solutions based on their understanding of lenders’ criteria and products. Your Mortgage Experts, an independent firm regulated by the Financial Conduct Authority (FCA), will give you unbiased advice serving your best interests throughout the mortgage process.
Part and part mortgages provide adaptable solutions for buyers with diverse financial situations. While they offer considerable advantages like improved affordability and customised repayments, it’s paramount to understand the associated risks thoroughly. Seek professional advice from an independent mortgage broker like Your Mortgage Experts to help you navigate the intricacies of part and part mortgages.
What is a part and part mortgage?
A part and part mortgage combines repayment and interest-only mortgages, allowing borrowers to split their mortgages into two parts. One portion pays the principal and interest, while the other solely services the interest. This structure offers flexibility and potential advantages for borrowers.
How does a part and part mortgage work?
Part and part mortgages are not standardized, and the specifics vary depending on the lender. Borrowers have control over how much of their loan is allocated towards repayment and how much towards interest only. However, a substantial portion of the mortgage needs to be repaid on a repayment basis. Borrowers must present a "repayment strategy" to prove their ability to repay the remaining interest-only balance at the end of the term.
What are the benefits and potential pitfalls of part and part mortgages?
Part and part mortgages enhance affordability, particularly for individuals with fluctuating income streams. The interest-only segment allows for lower monthly repayments, while the repayment component gradually reduces the overall debt. However, there are potential pitfalls, such as higher overall interest payments in the long run and the risk of negative equity if property prices fall or investments linked to the mortgage perform poorly.
Who is eligible for a part and part mortgage, and how can a mortgage broker assist?
Eligibility for a part and part mortgage depends on factors such as repayment strategy, property nature and value, deposit amount, and creditworthiness. A mortgage broker, such as Your Mortgage Experts, can provide valuable assistance by guiding borrowers through the application process, identifying suitable lenders, and offering personalized solutions based on their understanding of lenders' criteria and products.
Luca BertolinoMortgage Expert
Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.