Interest-only repayment strategies

ISA portfolios, stocks and shares, and other investment vehicles are commonly used as repayment strategies. Lenders will want to see the current value of your investments and may apply a discount to account for market fluctuations. A portfolio currently worth £250,000 might only be credited at 80–90% of its value for repayment purposes.

Regular savings plans can also form part of a repayment strategy, though lenders will assess whether the projected savings over the remaining mortgage term are realistic given your income and expenditure.

The key is demonstrating that your investments or savings have a reasonable prospect of reaching the required amount by the end of the term. Diversified portfolios with a track record of growth are viewed more favourably than speculative or concentrated holdings.

Under pension freedom rules introduced in 2015, you can withdraw up to 25% of your defined contribution pension pot as a tax-free lump sum from age 55 (rising to 57 from 2028). Many lenders accept this as a repayment vehicle if the projected lump sum is sufficient to clear the mortgage.

You will need to provide pension statements showing the current pot size, and the lender will model whether the projected value at the time you plan to access it will be enough. Growth assumptions vary between lenders, so broker advice is valuable here.

Defined benefit pension lump sums (commutation) can also be used, though lenders need to see the scheme’s rules and projected commutation value. Not all defined benefit schemes offer a lump sum option, and the amount available depends on the scheme’s rules.