£950k Interest Only Mortgage to Finalise a Divorce Settlement

Our client, aged 67 and employed as a senior executive, owned a property in Oxfordshire valued at £1.6m, with an existing mortgage of £730,000.

As part of his divorce, he needed to release £220,000 to finalise the financial settlement, while repaying his existing mortgage in full. This meant a remortgage to raise capital, with total borrowing of £950,000.

The client planned to sell the property and downsize within the next couple of years. His existing lender could not offer the borrowing required, and a previous broker had been unable to place the case before he approached LDN Finance.

With a sale planned within two years, the mortgage only needed to run for a short term. Over that period, repaying £950,000 was not affordable on his salary, so the borrowing had to be arranged as an interest only mortgage.

In practice, the application asked a lender to agree £950,000 on an interest only basis for a borrower aged 67, assess affordability on his earned income and accept the sale of the property as the repayment strategy.

Lenders also set a maximum age at the end of the mortgage term, which narrowed the options further. The client needed the funds in place quickly to finalise the settlement, and a mortgage without early repayment charges, so that repaying it on sale would not reduce the funds available for his next home.

Jon Stuart – Mortgage Adviser, identified a lender whose standard policy allowed lending to age 70 at the end of the term. That gave a three-year mortgage, long enough to cover the planned sale, and meant the case could be placed without relying on an exception to criteria.

Later life lending options were considered. With the client in employment, the loan size required and a sale planned within two years, a residential mortgage was the more appropriate route.

Drawing on his relationship with the lender, Jon presented the case as short-term borrowing with a clear exit, backed by the client’s salary and the substantial equity in the property. The lender stress tested affordability on an interest only basis across the three-year term, and the application met its criteria on earned income alone, without relying on pension income or other assets.

Jon recommended a tracker rate with no early repayment charges, so the client could repay the mortgage in full on sale without penalty.

The lender agreed a £950,000 interest only tracker mortgage over a three-year term, at around 59% loan to value. The existing mortgage was repaid in full and £220,000 was released to finalise the divorce settlement.

The client completed the settlement while remaining in his home, with the flexibility to sell at any point within the term.

When our client is ready to downsize, LDN is ready to advise on financing his next home, including the options available to borrowers later in life.

The outcome reflects Jon’s knowledge of lender criteria and his ability to structure substantial interest only borrowing around a client’s plans at speed, placing a case that had not progressed elsewhere.