Part and Part Mortgages

A part and part mortgage splits one loan into a repayment portion, paid down over the term, and an interest-only portion, where only interest is paid and the capital is repaid at the end from another source such as the sale of the property or investments.

Part and part, split and combination mortgages are names for the same structure: one mortgage with a repayment part and an interest-only part, with the product and rate arrangements confirmed by the lender. The split between the two parts is agreed at the outset.

A part and part mortgage lowers monthly payments compared with full repayment, while reducing the balance left at the end compared with full interest-only. It suits borrowers with a credible plan to repay part of the loan from assets.

Lenders commonly accept the sale of the property, investments such as Individual Savings Accounts (ISAs), pension tax-free cash, the sale of other property, or other assets, each with evidence. Accepted strategies and thresholds vary by lender.

Many lenders accept sale of the property as the strategy for the interest-only part, provided you meet minimum equity or property value levels, so that selling would repay the debt and leave enough to buy another home.

Some lenders accept pension tax-free cash as a repayment strategy, with evidence of the pension's value and projected lump sum. Others do not, because the value and access can change.

Investments such as Individual Savings Accounts (ISAs), unit trusts or shares can be accepted as a repayment strategy, with evidence of current value and contributions. Lenders may check the strategy periodically during the term.

Many lenders contact interest-only borrowers during the term to confirm the repayment strategy is on track, and the Financial Conduct Authority (FCA) expects lenders to engage with borrowers whose plans may fall short.

If the strategy falls short, options include overpaying, converting more of the loan to repayment, extending the term where possible, or selling the property. Acting early gives more options. Your lender will discuss the options with you.

Lenders cap the interest-only portion, often at a lower loan-to-value than the overall mortgage, and the cap may depend on the repayment strategy and income. The rest of the loan must be on repayment.

Some lenders set a minimum income for interest-only lending, including the interest-only part of a part and part mortgage, while others do not. Affordability is assessed on the combined payment.

Lenders accepting sale of the property as a strategy usually require minimum equity or a minimum property value, to show that selling would clear the debt and leave enough for another home.

Affordability is assessed on the combined monthly payment — capital and interest on the repayment part plus interest on the interest-only part — at the lender's stressed rate, under the Financial Conduct Authority's (FCA) rules.

Part and part has lower monthly payments than full repayment, but costs more in total interest, because interest is charged on the interest-only capital for the whole term, and that capital must still be repaid.

Part and part leaves less to repay at the end than full interest-only and usually needs a smaller repayment strategy, at the cost of higher monthly payments. It reduces the risk of a large shortfall.

Most part and part mortgages allow overpayments within the lender's limits, which can be applied to reduce the interest-only part and the balance owed at the end. Overpaying early has the largest effect on interest.

Many lenders allow you to move more of the loan from interest-only to repayment during the term, which raises payments but reduces the end balance. Moving the other way usually needs a new assessment.

Remortgaging from full interest-only to part and part reduces the balance outstanding at the end and is a common step for borrowers whose strategy no longer covers the whole loan. Affordability is assessed on the new payment.

Most buy to let mortgages are interest-only, so part and part is less common, though some lenders offer partial repayment. The rental stress test usually applies to the interest-only basis.

Older borrowers can get part and part mortgages where the term fits the lender's age limits and the strategy is credible; retirement interest-only mortgages are an alternative for some later-life borrowers.