Borrowers rich in earnings could take advantage of the market’s only fully flexible interest-only mortgage, as NatWest launches its new ‘HomeFlex’ deal.
With this deal, homeowners could make fee-free withdrawals from the pre-agreed pot of cash (a 'flexi-pot') to invest however they wish, whilst getting the choice to make fee-free overpayments to reduce their loan.
But how does HomeFlex work well, and just how do the rates match up to the rest of the market?
How does NatWest’s HomeFlex interest-only mortgage work?
HomeFlex is definitely an interest-only mortgage, which means you only pay off the interest every month and never the borrowed funds itself.
As with other interest-only mortgages, you’ll be expected to pay off the borrowed funds after the mortgage term, so you’ll need to have a plan in position with this – for instance, selling the property and downsizing, or using money from investments or savings.
With interest-only mortgages, you’ll usually pay more interest during the period of the mortgage compared to a repayment mortgage. And when your home loses value throughout the term of the mortgage there’s high risk of falling into negative equity.
Strict eligibility criteria
This mortgage isn't available to everyone – actually, you will find strict eligibility criteria, including:
How much are you able to borrow?
The maximum amount you are able to borrow with the NatWest HomeFlex depends upon your ability to make your monthly obligations, as well as your repayment strategy.
Those who're likely to sell their property at the end of the mortgage term, using the money from the sale to repay the rest of the loan, can only borrow up to 50% LTV.
But, for those who have alternative repayment plans, you can borrow as much as 75% LTV.
You must borrow no less than lb25,000, and have a flexi-pot of at least lb10,000.
What mortgage deals are available?
You can choose from a two-year tracker mortgage and a two or five-year fixed-rate mortgage.
Those who want to understand what their mortgage payments will be every month may like the certainty of the fixed-rate mortgage; tracker options follow the Bank of England base rate, so might have to go up or down depending on whether any changes occur during the term.
At 60% LTV:
| Mortgage | Initial rate | Revert rate | APRC |
| Two-year fixed | 1.73% | 4.24% | 3.8% |
| Five-year fixed | 2.09% | 4.24% | 3.5% |
| Two-year tracker | 2.29% | 4.24% | 4% |
The cheapest deal available on the market for a two-year fix suitable for remortgaging at 60% LTV happens to be 1.44% – so you’ll be paying roughly 0.3% more for HomeFlex’s added flexibility. This difference is the same for five-year fixes.
There’s a larger gap between the the least expensive tracker, which is currently 1.49% – that’s 0.8% less than the NatWest option.
At 70% LTV:
| Mortgage | Initial rate | Revert rate | APRC |
| Two-year fixed | 1.79% | 4.24% | 3.8% |
| Five-year fixed | 2.19% | 4.24% | 3.6% |
| Two-year tracker | 2.49% | 4.24% | 4% |
Market-wide, the least expensive 70% LTV deal for a two-year fix is 1.50% along with a five-year fix is 1.89%, which inserts with the 0.3% difference. The cheapest two-year tracker, however, is 1.49% – an entire percentage cheaper than the HomeFlex deal.
At 75% LTV:
| Mortgage | Initial rate | Revert rate | APRC |
| Two-year fixed | 1.79% | 4.24% | 3.8% |
| Five-year fixed | 2.19% | 4.24% | 3.6% |
| Two-year tracker | 2.52% | 4.24% | 4% |
If you’re looking for the cheapest 75% LTV deal available on the market, you could get a two-year fix at 1.44% and a five-year fix at 1.87%. The lowest-rate two-year tracker for this LTV is 1.49% – that’s 1.03% less expensive than the NatWest deal.
You also needs to be aware that every variant from the HomeFlex mortgage has a lb995 product fee. You may either pay this up front or add it to the price of the mortgage if the combined borrowing and flexi-pot amount allows for it, however the latter option will incur interest.
There is going to be early repayment charges (ERCs) if you fully repay your mortgage or switch to another provider inside the initial two or five-year period.
What can the flexi-pot be utilized for?
The downside of the flexi-pot is you have to wait 3 months before you can help make your first withdrawal.
However, once you’ve got access to the cash, you are able to virtually use it however you wish. NatWest provides examples such as giving your son or daughter a deposit for their first home, making home improvements, spending money on a child’s wedding, happening holiday or any other ‘life events’.
The something this money can’t be used for would be to pay off other loans or credit card debts you might have.
It’s also worth considering the minimum amount you can withdraw is lb10,000.
How much are you going to actually pay?
To observe how the mortgage works in practice, let’s consider using a scenario where you’ve got a 75% LTV mortgage on a lb600,000 property, including a lb20,000 flexi-pot. What this means is you’d borrow lb430,000, and add on the extra lb20,000 to really make it as much as 75% LTV.
With the two-year fixed-rate mortgage at 1.79%, your monthly obligations could be lb642 as well as your remaining balance at the end of the two-year term would be lb430,000. This really is let's assume that you don’t make any overpayments and don’t withdraw all of your flexi-pot.
However, should you withdraw, say, lb10,000 from the flexi-pot, your brand-new monthly payment would increase to lb657 – you’re charged lb15 extra interest each month.
If you had made this withdrawal 12 months into the mortgage, at the end of the term your remaining balance could be lb440,000 to reflect the extra lb10,000 you’ve spent, and you’d have paid lb180 more in interest.
If you had been to create a lump sum overpayment of lb10,000, the alternative would happen; you’d pay lb627 a month, reduce the interest by lb180 and have lb420,000 remaining after the mortgage.
You can also make monthly overpayments. Adding an additional lb200 for your payment each month will bring up your bill to lb842. If you did this halfway with the two-year term, you’d have a remaining balance of lb427,581.
So, as the choice to use profit your flexi-pot could be appealing, it’s best-suited to those who are able to make regular or lump-sum overpayments to mitigate the added interest and increased remaining balance that come because of spending it.
Can every other mortgage products compare?
Currently, no other products available on the market offer quite exactly the same thing because the NatWest HomeFlex mortgage, so it’s certainly filling a spot.
The HomeFlex differs from other interest-only mortgages because you can make withdrawals out of your flexi-pot making fee-free overpayments.
Other products allowing overpayments won't allow you to withdraw cash out of your home, and remortgaging to release equity means upping your loan and monthly obligations.
Before the economical crash, there were more items like this. The kind of Nationwide and Virgin Money have offered similar 'fully flexible' mortgage options in the past, however these don't appear to have been readily available for many years.
Instead, current 'flexible' mortgages just offer overpayments and could waive early repayment charges (ERCs).
