Clydesdale Bank is introducing changes to its mortgage range that will see it offer a part interest-only and part repayment product.
The “Low Start Mortgage”, combines the lower payments of interest-only with the long-term security of repayment (capital and interest).
Borrowers take a mortgage with an initial three-year fixed rate loan on interest-only terms, at the end of this the loan reverts to standard variable rate on repayment terms for the remaining life of the mortgage.
This means that for the first three years the repayments will be lower as you are only paying interest on the loan and not paying off any of the capital. After three years you will start to pay off the value of the property as well as interest so the monthly repayments will rise.
Recognising the specific nature of the Low Start Mortgage, it will be launched to the mortgage broker market only in the first instance.
Borrowers will need a minimum 20 per cent deposit as the maximum loan-to-value (LTV) is 80 per cent. Fees range from £999 for loans less than £500,000 or £1,499 up to £1 million.
The interest rate starts at 3.09 per cent for a 60 per cent LTV mortgage up to 4.49 per cent for 80 per cent LTV.
Clydesdale and Yorkshire Bank brands will no longer offer interest-only loans in branches. They are only available through mortgage brokers; and Clydesdale’s Private Banking channel for loans between £300,000 and £1million.
Where loans are over £1 million, interest-only may be available for “part and part” lending up to 60 per cent LTV.
Fred Sharp, head of mortgage distribution at Clydesdale Bank, said: “There is a clear need for interest-only mortgage products in the marketplace, but this has to be in the right circumstances and with the right support – financially and advisory.
“Our new approach addresses both the need and the concerns associated with interest-only mortgage lending; we have retained the option while controlling the availability, and launched a new product that takes the best of both interest-only and repayment mortgages to support borrowers looking for a new home.”
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