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An interest-only secured loan allows you to borrow against the equity in your property while making monthly payments that cover the interest rather than paying down the amount borrowed.
This means your monthly repayments are generally lower than they would be on a capital repayment loan of the same amount, interest rate and term.
However, you’ll still need to repay the full amount borrowed at the end of the loan term.
Interest-only secured loans can be useful for homeowners who want to raise funds for home improvements or another acceptable purpose and have a realistic plan for repaying the balance later.
At Willows Finance, we work with specialist lenders that offer interest-only secured loans. We can help you understand their lending criteria, repayment requirements and whether this type of borrowing may suit your circumstances.
An interest-only secured loan is a loan secured against your property where your regular monthly payments cover the interest charged, rather than reducing the original loan balance.
For example, if you borrow £30,000 on an interest-only basis, you would normally make monthly interest payments throughout the loan term. At the end of the term, you would still owe the original £30,000, assuming you haven’t made any additional capital repayments.
This differs from a standard repayment secured loan, where each monthly payment goes towards both the interest and the amount borrowed.
Interest-only secured loans are specialist products, and not every secured loan lender offers them.
When you take out an interest-only secured loan, the lender agrees to advance a sum of money secured against your property.
You’ll then make monthly payments towards the interest charged on that borrowing.
Because you aren’t normally paying down the capital each month, the monthly payment is lower than it would be for a repayment loan on otherwise identical terms.
Here’s an illustrative comparison.
| Interest-only loan | Repayment loan | |
|---|---|---|
| Amount borrowed | £30,000 | £30,000 |
| Illustrative interest rate | 8% | 8% |
| Monthly repayment | £200 | Approximately £364 |
| Balance remaining after 10 years | £30,000 | £0 |
| Approximate total paid, including the final balance | £54,000 | £43,678 |
Illustration only. Assumes an 8% interest rate throughout the 10-year term, monthly repayments and no fees. It is not a quotation or an indication of rates available from Willows Finance.
In this example, the interest-only loan has a lower monthly payment, but the borrower pays more overall and still needs to find £30,000 at the end of the term.
That’s why the repayment plan is just as important as the monthly affordability.
Yes. We work with specialist lenders that can consider interest-only secured loan applications.
However, fewer lenders offer this type of borrowing compared with standard capital repayment secured loans.
Lenders may also apply stricter eligibility criteria because the full loan balance remains outstanding throughout the term.
Depending on the lender, there may be:
A minimum loan amount
A maximum loan-to-value (LTV) limit
Specific affordability requirements
Restrictions on acceptable repayment plans
Requirements for evidence of how the loan will be repaid
The lender will want to be satisfied that you can afford the monthly interest payments and have a credible way to repay the capital at the end of the term.
Our advisers can help establish which lenders may consider your circumstances and what evidence they will require.
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At the end of an interest-only secured loan, you’ll normally need to repay the full outstanding balance. Lenders therefore require a repayment strategy, sometimes called a repayment vehicle, before agreeing to the loan.
An acceptable repayment strategy depends on the lender’s criteria and the evidence available. Common examples include the following.
You may plan to sell your existing home and move to a smaller or less expensive property. The proceeds from the sale could then be used to repay the interest-only loan.
The lender may assess whether the expected equity would be sufficient after repaying other mortgages, sale costs and the amount needed for your next home. Not every lender accepts downsizing as a repayment strategy, and some may apply additional conditions.
Some borrowers plan to repay the loan using money available from a pension. A lender may consider this where there is sufficient evidence of the pension’s value, when the funds can be accessed and how much is expected to be available.
However, pension funds aren’t necessarily available in full as a tax-free lump sum. Accessing a pension may also have tax implications and affect retirement income.
It’s important to obtain appropriate pension or financial advice before relying on this approach.
Some lenders may accept suitable savings, investments or other assets as evidence of a repayment plan.
They may ask for statements, valuations or other documents to confirm the funds are available or reasonably expected to be available when the loan ends.
The lender may also consider the risk that an investment or asset could fall in value.
This varies between lenders. For example, one lender may consider downsizing, while another may require an existing investment or pension arrangement that meets its criteria.
Having a repayment plan doesn’t automatically mean a lender will accept it.
If you’re considering an interest-only secured loan, tell us how you intend to repay the balance. We can check which lenders may accept that approach before you proceed with an application.
Potentially. Downsizing can be an acceptable repayment strategy for some interest-only lenders.
For example, you might own a property worth £450,000 and plan to move to a less expensive home when the loan term ends.
The lender will need to consider your existing mortgage, the proposed interest-only borrowing and whether the expected sale proceeds could realistically clear the outstanding debts while leaving enough money for your next property.
The lender may also consider your age, the proposed loan term and any other conditions within its criteria.
If downsizing is your intended repayment strategy, our advisers can help establish which lenders may consider it and what supporting information they need.
Some lenders may accept a pension-based repayment strategy, depending on the type and value of the pension and when the funds can be accessed.
For example, if you expect to access a pension lump sum before the interest-only loan reaches the end of its term, a lender may be prepared to assess that as part of your repayment plan.
The lender may request pension statements or projections. It’s important not to assume that the full pension value will be available to repay the loan, or that accessing the funds will be suitable for your retirement plans.
If you intend to use pension funds, consider taking advice from an appropriately qualified financial adviser before committing to the borrowing.
Depending on the lender, interest-only secured loans may be offered with fixed or variable interest rates.
These arrangements affect how your monthly interest payments are calculated, but they don’t change the requirement to repay the outstanding capital.
Some products may offer an initial fixed rate for a specified period, such as two or three years.During that period, the interest rate and monthly interest payment generally remain the same, provided the loan terms are met.
When the fixed-rate period ends, the loan may move to a variable rate or another arrangement set out in the agreement.
Some lenders may offer longer fixed-rate periods, such as five years. This can provide more certainty over the monthly interest payment during the fixed period. However, the availability of longer fixed rates depends on the lender and product.
With a variable-rate loan, the interest rate can change during the term. Depending on the product, the rate may be linked to the Bank of England base rate or determined by the lender’s standard variable rate.
If the interest rate rises, your monthly payments may increase. If it falls, they may decrease.
Our advisers can explain the interest-rate options available from the lenders that may accept your application.
An interest-only secured loan may offer benefits for borrowers with a suitable repayment strategy.
Lower monthly payments: Paying interest only can reduce monthly outgoings compared with a repayment loan on equivalent terms.
Access to property equity: You may be able to raise funds without replacing your existing mortgage.
Flexibility for future plans: It may suit borrowers expecting to repay the capital from an acceptable source later.
A choice of specialist lenders: Some lenders offer interest-only products for borrowers whose circumstances meet their specific criteria.
However, the benefits need to be weighed against the higher total borrowing costs that can arise and the obligation to repay the capital.
The most important risk is that your original loan balance doesn’t normally reduce through your monthly interest payments.
This means:
You’ll still owe the outstanding capital at the end of the term.
You could pay more interest overall than with an equivalent repayment loan.
Your planned repayment source might not provide enough money when needed.
Variable interest rates could increase your monthly payments.
Your available property equity could reduce if property values fall.
Your home may be repossessed if you fail to maintain repayments or cannot repay the outstanding balance when it becomes due.
If your repayment strategy depends on selling your home, investments or pension funds, consider what would happen if their value or availability changed.
It’s important to understand these risks before choosing an interest-only arrangement.
This may be possible in some circumstances, but it isn’t an automatic change. Your existing lender would need to agree to any change in repayment arrangements, or you may need to consider refinancing with a lender that offers interest-only borrowing.
The lender will assess affordability, the property and your proposed repayment strategy. Switching from repayment to interest-only can reduce monthly payments, but it also means the outstanding capital may no longer reduce through regular repayments.
Our advisers can help you explore whether an interest-only alternative is available and explain the costs involved in changing your existing borrowing.
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Finding the right finance doesn’t have to be complicated – so, we’ve made the process clear and simple. Whether you’re applying for a Secured Loan, Mortgage or Bridging Finance, we’ll compare the market for the best options that meet your criteria and provide you with a fast no-obligation quote.
The initial enquiry takes under 2 minutes to request an in-principle loan or mortgage quote.
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The application process is similar to other secured loan applications, but the lender will also want evidence of how you intend to repay the capital.
Depending on the lender, you’ll usually need to provide:
Details of your property and existing mortgage
Evidence of income and financial commitments
Information about the amount you want to borrow
Details of the intended loan purpose
Evidence of your proposed repayment strategy
Pension statements, savings information or other supporting documents where relevant
The lender will assess your credit history, affordability, property value and available equity.
Some applications may also require further evidence to establish that the repayment strategy is acceptable.
At Willows Finance, we can help you identify which lenders offer interest-only secured loans and what documentation they require.
Interest-only borrowing can offer lower monthly payments, but it’s important to choose a lender that accepts your circumstances and proposed repayment strategy.
At Willows Finance, we work with specialist lenders offering different interest-only criteria, loan amounts and interest-rate arrangements.
Our advisers can help you understand the available options and what evidence you’ll need to support your application.
Planning to repay your loan by downsizing, using pension funds or another asset? Tell us about your plans so we can check which lenders may consider them.
Request a free, no-obligation quote or call 01656 766 158 to speak with an experienced adviser.
Getting an initial quote won’t affect your credit score.
Your home may be repossessed if you do not keep up repayments on a loan secured against it.
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At Willows Finance we ensure your personal information is kept secure and confidential.
PRIVACY OF YOUR INFORMATION
At Willows Finance Ltd, we appreciate that your privacy is extremely important to you. With this in mind, we have put in place a number of measures to ensure that any personal details we obtain from you as a result of visiting this website is processed and maintained in accordance with accepted principles of good information handling and also in accordance with the Data Protection Act 1988.
This statement provides you with details of the type of information we may hold about you, how we obtain and use information and how we protect your privacy.
Willows Finance Limited
Brocastle, Bridgend, CF35 5AS
Authorised and regulated by the Financial Conduct Authority
Firm Reference Number: 670052
Company Number: 06678545 (Registered in England and Wales)
This document explains the services we provide, the range of lenders and products we consider, how mortgage advice may be provided, and how Willows Finance may be paid. Please read it carefully before proceeding with an application.
If you need clarification about any part of this document, please contact us on 01656 766158.
Willows Finance arranges first and second charge mortgage products. Depending on the circumstances of the application, these may include:
We also arrange both regulated and unregulated bridging finance.
Not every product will be suitable or available to every customer. The products considered will depend on your circumstances, borrowing requirements, purpose of the borrowing, property, intended use of the property and the relevant lender criteria.
Depending on your circumstances, Willows Finance may:
If you are looking to increase borrowing secured on a property which already has a regulated mortgage, there may be different ways of raising the additional funds. Depending on your circumstances, these may include:
Where applicable, we will make you aware of these alternatives before proceeding. The options we are able to assess or advise on will depend on the service being provided and the lenders available to us.
The regulatory status of a mortgage or bridging loan depends on the circumstances of the transaction, including the property, how it is or will be occupied, the purpose of the borrowing and the customer’s circumstances.
Our business includes:
We will identify the regulatory status applicable to your application and explain the service and protections that apply. The protections available to you can differ depending on the type of mortgage or loan.
The range of lenders and products we consider depends on the type of finance you require.
We offer a comprehensive range of second charge mortgages from across the relevant market using a representative panel of lenders. We review our panel regularly to ensure that it remains sufficiently broad and representative. We do not consider products that are only available by applying directly to a lender.
We only offer first charge mortgages from a limited panel of 13 lenders. We consider the first charge mortgage products made available to us by Kensington Mortgages, The Mortgage Works, Aldermore, United Trust Bank (UTB), Together, Masthaven, West One, Norton, Bluestone, Vida, Pepper Money, Mansfield Building Society and Nationwide Building Society.
We do not offer every first charge mortgage available from across the market.
We consider products from a range of lenders available to Willows Finance for the relevant transaction.
Consumer Buy-to-Let and unregulated Buy-to-Let applications are considered within the relevant first charge, second charge or bridging route, depending on the structure of the transaction.
We do not provide a whole-of-market service and do not claim to consider every mortgage or secured finance product available in the UK. Our assessment is based on the lenders and products available through our lender and distribution arrangements.
Where the applicable regulatory rules require us to identify the lenders whose products we offer, the relevant lender list will be provided to you in a durable medium as part of the initial disclosure for your application. A lender list is also available on request where applicable.
The service provided will depend on the lender, product and application route identified for your circumstances.
Where Willows Finance provides the mortgage advice, we provide an advised mortgage broking service. We will obtain information about your needs and circumstances, assess the lending options available within the scope of our service and, where appropriate, make a mortgage recommendation.
We will make it clear where Willows Finance provides the mortgage advice and recommendation.
We may also provide a packaging service. This is a non-advised administrative service under which we may collect information and supporting documents, complete administrative checks, liaise with the relevant parties and submit or progress an application.
When we provide a packaging service, we do not assess the suitability of the mortgage, provide mortgage advice or make a personal recommendation. Any regulated mortgage advice or recommendation will be provided by the appropriately authorised intermediary responsible for advising you.
Our packaging service is not a regulated advisory service. However, the mortgage itself and any arranging activity connected with it may still be regulated and subject to the applicable regulatory requirements. We will explain the nature and regulatory status of the service we are providing before you proceed.
For some applications, particularly certain second charge mortgage applications, our sourcing exercise may identify a route where the subsequent mortgage advice is provided by another regulated mortgage intermediary.
In these cases, the Willows Finance service may include:
After the introduction, the receiving intermediary may take over the detailed application, advice and recommendation process. We will make it clear where this type of referral arrangement applies.
Where our sourcing process identifies Evolution Money Limited as an appropriate route and we introduce your application to Evolution Money, Willows Finance will not provide the regulated mortgage advice or make the final mortgage recommendation in relation to the Evolution mortgage.
Following the introduction, Evolution Money Limited will take over the detailed application and advisory process. Evolution Money will assess your needs and circumstances and will be responsible for any regulated mortgage advice and recommendation it provides in relation to the Evolution mortgage.
Willows Finance remains responsible for the service it provides before and in connection with the referral, including its initial assessment, sourcing and introduction activity.
If you are experiencing financial difficulty, or if you are considering borrowing to consolidate existing debts, free and impartial debt advice is available from MoneyHelper and other free debt-advice organisation.
MoneyHelper: www.moneyhelper.org.uk
You should consider obtaining free debt advice if you are unsure whether further borrowing or debt consolidation is right for you.
We process your personal information in accordance with our Privacy Policy. Where we introduce you to a lender or another intermediary, that organisation will process your information in accordance with its own privacy information.
Willows Finance Privacy Policy: willowsfinance.co.uk/privacy-cookie-policy/
The way Willows Finance is paid depends on the lender, product and application route. We may receive a fee paid by you, commission paid by a lender or another third party, or a combination of these. We will explain the basis on which we will be remunerated in connection with your application.
Where Willows Finance off an advised service our fees are split into two parts. A fee for the advice you receive and a fee for the processing of the application to completion. Both of these fees can be added to the loan rather than paid upfront or you have the option of paying them in advance. We do not arrange loans below £10,000.
For the advice the fee is as follows;
For a first charge mortgage, our advice fee is 5% of the amount borrowed, subject to a minimum fee of £625 and a maximum fee of £1,250.
For a second charge mortgage, our advice fee is 5% of the amount borrowed, subject to a minimum fee of £625 and a maximum fee of £1,750.
For a first charge mortgage, our processing fee is 5% of the amount borrowed, subject to a minimum fee of £625 and a maximum fee of £1,250.
For a second charge mortgage, our processing fee is 5% of the amount borrowed, subject to a minimum fee of £625 and a maximum fee of £1,750.
| Service | First charge | Second charge |
|---|---|---|
| Advice fee | 5%, min £625, max £1,250 | 5%, min £625, max £1,750 |
| Processing fee | 5%, min £625, max £1,250 | 5%, min £625, max £1,750 |
On borrowing of £10,000 5% would be £500, but the minimum fee for advice and processing means that we would charge £625 for each to £1250 in total.
On borrowing £20,000 the total fees would be £2,000
On borrowing £50,000 the maximum fee means that we would charge a total of £2500 for a 1st charge mortgage and £3500 for a 2nd charge mortgage.
If your mortgage or loan completes following an introduction made by Willows Finance, we will receive commission from the lender or another third party in the distribution chain unless we tell you otherwise. Different lenders may pay different amounts and may use different commission models.
Commission models may include:
The availability or amount of commission does not determine which lender we consider appropriate for your circumstances. Where applicable, we will tell you that commission will be received.
For an MCD regulated mortgage (a mortgage within the Mortgage Credit Directive rules), where the exact amount of commission is not known at the time of the initial disclosure, we will tell you that the actual amount will be disclosed later in the ESIS. Where applicable and on request, we will also provide information about how commission levels vary between lenders offering the mortgage being considered.
Where we introduce you to Evolution Money, the commercial arrangement is different from a broker fee charged directly by Willows Finance.
Under the current Evolution arrangement, Evolution Lending charges a Product Fee equal to 10% of the net loan advance, subject to a maximum of £5,000. If the mortgage completes, Evolution pays the corresponding amount to Willows Finance as commission/remuneration for the sourcing, distribution and introduction service.
The amount of the product fee and the amount of remuneration payable to Willows Finance will be disclosed to you in the relevant mortgage documentation before completion.
Example: on a £10,000 net advance, a 10% Product Fee would be £1,000. The actual Product Fee and the amount of commission payable to Willows Finance will be set out in the relevant Evolution mortgage documentation before completion.
If you choose to add a Product Fee or other fee to your mortgage, interest will be charged on that amount while it remains outstanding, increasing the total amount you repay.
Where a Willows Finance fee is payable only on completion, it will not become payable if the mortgage does not complete. Any fee payable before completion, third-party costs and the circumstances in which a fee is refundable or non-refundable will be explained where applicable.
Fees which have become payable following completion are generally non-refundable unless the relevant contractual terms, applicable law or regulatory redress require otherwise.
Before you become bound by a regulated mortgage, you will receive the relevant mortgage illustration or European Standardised Information Sheet (ESIS) and the lender’s offer documentation as applicable.
These documents contain important information about the proposed mortgage, which may include:
Please read these documents carefully. If anything is unclear or does not reflect your understanding, contact the firm responsible for the advice or recommendation before proceeding.
You may tell us that you no longer wish to proceed with an application before completion. Whether any third-party cost is payable or refundable will depend on its own terms.
For an MCD regulated mortgage (a mortgage within the Mortgage Credit Directive rules), the lender will provide a binding offer with a reflection period of at least seven days. You may normally accept the offer during that reflection period if you decide to proceed.
Once a mortgage has completed, there is generally no right simply to cancel or withdraw from the mortgage. You may have a right to repay the mortgage early in accordance with its terms, and an early repayment charge may apply.
Always check the early repayment section of the ESIS and mortgage offer before completion if early repayment or regular overpayments are important to you.
If you miss or make late payments, the lender may apply charges, and your credit record may be affected. Continued failure to maintain payments may result in enforcement action and ultimately repossession of the property used as security.
If you are experiencing financial difficulty, contact your lender as soon as possible and consider obtaining free independent debt advice.
Consolidating existing debts into a mortgage can reduce monthly payments but may increase the total amount of interest you pay if the borrowing is repaid over a longer period.
Debts which are currently unsecured may become secured against your home. Extending the repayment period may mean that you pay considerably more overall even where the monthly payment is lower.
Interest rates on variable-rate mortgages can increase, which may increase monthly repayments and the total amount repaid.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.
If you are dissatisfied with any aspect of the service provided by Willows Finance, please contact us:
Willows Finance Limited
Brocastle, Bridgend, CF35 5AS
Telephone: 01656 766158
Email: [email protected]
We will investigate your complaint in accordance with our complaints procedure. If you remain dissatisfied with our final response, or in other circumstances where you are eligible to do so, you may be able to refer your complaint to the Financial Ombudsman Service.
Financial Ombudsman Service: www.financial-ombudsman.org.uk
Where another regulated intermediary has provided the mortgage advice or recommendation, complaints about that firm’s advice should normally also be raised with that firm. You can still complain to Willows Finance about the service provided by Willows Finance.
The Financial Ombudsman Service can generally consider complaints about regulated or otherwise covered activities, including certain activities that are ancillary to them. It may not be able to consider a complaint that relates solely to an unregulated product or service and has no connection with a regulated or otherwise covered activity. Whether a complaint falls within its jurisdiction will be determined by the Financial Ombudsman Service based on the individual circumstances.
Willows Finance Limited is covered by the Financial Services Compensation Scheme for eligible regulated activities. If an authorised firm is unable to meet an eligible claim, compensation may be available from the FSCS.
For protected home finance mediation, the current compensation limit is 100% of an eligible claim up to £85,000 per eligible claimant, per firm. Eligibility depends on the circumstances of the claim and the applicable FSCS rules.
FSCS protection does not generally apply to a claim arising solely from an unregulated product or service, including any packaging service that falls outside regulated home-finance mediation. Whether a claim is eligible will depend on its individual circumstances and the applicable FSCS rules.
Further information: www.fscs.org.uk
Once we have received sufficient information about your circumstances and requirements, we will carry out the relevant initial assessment and sourcing process and explain which application route applies to you.
Where Willows Finance provides the mortgage advice, we will continue through our advised mortgage process and explain any recommendations made.
Where your application is referred to another regulated intermediary, such as Evolution Money, we will explain that the receiving intermediary will take over the subsequent application and advisory process where applicable.
Please review all mortgage illustrations, ESIS documents, fee and commission disclosures, offer documents and other terms carefully before deciding whether to proceed. If anything is unclear, ask before committing to the mortgage.
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