Another mortgage has launched for small deposit buyers in the shape of Gen H’s ‘part and part’ mortgage.
The product is for those who have a 5% deposit and is therefore likely to be popular with first-time buyers.
A part and part mortgage is a mixture of capital repayment and interest-only. Whilst capital repayment mortgages – where the interest and the loan are repaid – are more common these days, interest-only products have become less common following the financial crisis because of the risk they pose.
Gen H said, in 2007, 50% of first-time buyers used interest only products but today, that number had fallen to just 1%.
Yet, they can help borrowers by reducing the monthly repayments and are also the most common type of mortgage used by buy-to-let borrowers.
A part and part, however, provides a flexible middle ground between these two mortgage types.
Gen H’s new product allows borrowers to take up to 80% of their mortgage on an interest-only basis, and the remainder as capital repayment. Additionally, the customer needs just a 5% deposit to take out the mortgage.
Gen H confirmed the borrower will own 100% of their home from Day One and can overpay as normal to reduce their capital balance.
It said the mortgage would be ideal for a customer who, for example, was currently renting, had a small deposit but couldn’t afford a standard capital repayment mortgage for the property they want.
It said buyers who couldn’t quite get the loan amount they needed could add an interest only portion to maximise their affordability.
But, also, those who wanted an interest-only mortgage and couldn’t quite achieve the full repayment strategy could ‘top up’ with a capital repayment portion to make the numbers fit.
Pete Dockar, Gen H chief commercial officer, said: “For most people, the path to homeownership isn’t straightforward. In a country where the average house price is eight times the average salary – to say nothing of places like London – the best mortgage products are those that can be carefully tailored to suit the needs of individual buyers.
“Part and part mortgages do exactly that. No more renting. No need for family help. And unlike shared ownership, there’s no staircasing, no frustrating administration, and no rent to be paid; just 100% homeownership from day one.”
How can you obtain the part and part mortgage?
The mortgage is currently available through certain mortgage brokers and anyone interested in a part and part options should seek advice before proceeding.
Nicholas Mendes, mortgage technical manager at broker, John Charcol, said the big advantage of the product was flexibility. He explained: “Borrowers who narrowly miss full repayment affordability can dial in an interest-only slice to bring the monthly cost within reach while still owning 100% from day one and retaining the ability to overpay.”
What to look out for with part and part mortgages
However, he warned there were some potential pitfalls too. “The trade-off,” he explained, “is that any interest-only balance must still be cleared at the end of the term, so borrowers need a credible plan via overpayments, future income, or equity growth.
“Costs should also be assessed on a true cost basis rather than just the headline rate, including fees and any early repayment charges.”
He said with good advice sensible loan sizing and regular reviews, a part and part structure could be ‘a practical way to bridge today’s affordability gap’ while reducing at least some of the capital from day one.
“The key,” he added, “is making sure borrowers understand that the interest only portion does not disappear and that a plan is in place to pay it down over time.”
