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How is an interest-only remortgage repaid?

Interest-only mortgages allow borrowers to repay just the interest on a mortgage during a set term with the capital repaid at the end of the loan. 

Lenders look for solid proof that the underlying capital can be repaid at the end of the term before granting a remortgage.

Acceptable methods of repaying the loan vary by lender but all will want to see that the strategy is credible. Depending on the risk of the repayment, some lenders may require higher income thresholds.

Is applying for an interest-only remortgage different to a repayment remortgage?

The normal lender criteria will apply to interest-only remortgages but lenders tend to have additional criteria that borrowers need to meet. 

Minimum income requirements are more stringent for interest-only, with the bar starting at around £40,000 a year. Depending on the repayment strategy, some lenders want to see as much as £100,000 a year.  

Furthermore, the loan-to-value ratios on offer are lower than with repayment mortgages. Some high street lenders require at least 50% equity in the property although LTVs of 75% are available.  

As a result, wealthier borrowers typically have more flexibility with interest-only loans and repayment strategies. 

However, the most important issue for lenders is that there’s good proof of repayment strategy that will ensure the borrower has the means to pay back the loan at the end of the term.