Flexible Mortgages

If you want more freedom and control over your monthly repayments, such as the ability to under- or overpay, a flexible mortgage could be the right product for you.

In this guide, you will learn about all the various options, choices and special features that flexible mortgages offer, as well as how a broker can help you find the best deal for your circumstances.

What is a flexible mortgage?

A flexible mortgage is just like a regular loan used to buy a property, but it comes with extra features designed to give the borrower more options, including changing your monthly repayments or taking a payment holiday.

This flexibility can be very appealing to borrowers whose income is irregular, for instance if you are self-employed or a seasonal worker.

However, not all flexible mortgages are the same; they have different features and degrees of flexibility. Whether a flexible mortgage is right for you will depend on your financial situation and personal circumstances.

What benefits do they offer?

The options offered by flexible mortgage lenders will vary widely, and their products will suit some more than others. If you need a specific feature, a broker can help you identify which flexible mortgage lenders offer this facility.

Here are some of the most common features offered to borrowers…

Option to overpay

Overpayments are where you pay more than your regular monthly repayments. These overpayments can be lump sums or set up as a regular payment.

Overpaying can help you to pay off your mortgage balance sooner and reduce the amount you will spend in mortgage interest. With flexible mortgages, you can stop these overpayments at any time.

Most lenders tend to only let you overpay 10% of your outstanding balance each year. If you go over this, you will have to pay an Early Repayment Charge (ERC) which can cost thousands of pounds. But some flexible mortgage lenders will let you overpay 20% or more without an ERC.

Take a look at our calculator below for a rough idea of how this could work out for you.

Option to underpay

This is the inverse of overpayments. If your mortgage lender permits it, underpayments allow you to pay less than your regular monthly repayments for a certain amount of time. This could be helpful if your income changes or you need the money for some other expense.

Typically, you’ll only be able to make underpayments if you’ve previously overpaid on your mortgage and had the mortgage for some time. Not all lenders offer underpayments, but even if they do, it’s important to inform your lender in advance that you will be making an underpayment.

Take a payment holiday

Payment holidays allow you to take a break from making your mortgage repayments for a short amount of time. You can usually pause payments for up to six months.

This can be useful if your income drops suddenly, such as if you lost your job or need to take sick leave, and can take the pressure off your finances in the short term. However, the interest on your mortgage builds up when you take a payment holiday, and your monthly repayments will increase as a result.

You will need to ask your lender for a payment holiday. They may only accept your request if you’ve made overpayments and had the mortgage for a certain amount of time.

Daily interest calculations

Compared to having your interest calculated monthly or yearly, daily interest calculations can work out much cheaper, especially if you make overpayments. That’s because any payments are immediately taken off your debt, reducing the amount you will pay interest on. This feature could appeal to those who want to make occasional lump sum overpayments.

Flexible mortgage savings account

One issue with making mortgage overpayments is that, unlike a savings account, you cannot take the money back if you need it. Thankfully, flexible mortgage savings accounts address this issue, by allowing you to take back any overpayments.

This allows you to use your mortgage like a savings account, reducing your interest after the overpayment is paid, but letting you borrow the money back to pay for things like a holiday or new car. Depending on your flexible mortgage rate, the interest saved on your mortgage is likely to be more than you would earn in a regular savings account.

Ability to switch & port

Some flexible mortgage lenders will let you switch your deal without needing to pay an ERC or making you remortgage. For instance, if you have a flexible tracker mortgage, you may want to switch to a flexible fixed mortgage to lock in a low interest rate. This feature is also called a droplock or a “switch & fix”.

Similarly, if you wish to move home, flexible mortgage lenders can allow you to “port” your mortgage to the new property without having to apply for a full remortgage.

Reserve account

Some older flexible mortgage deals came with a mortgage reserve account, which worked like an overdraft and allowed you to borrow against your home’s equity. You even received a cheque book.

However, these accounts are rarely offered today, and are often limited just to existing customers.

How a broker can help you get the best flexible mortgage deal

It can be very difficult to compare flexible mortgages, because lenders will offer different features, or have varying criteria about when you can make use of a feature. Shopping around and doing the research to find the right flexible mortgage deal for your circumstances can also be very time-consuming.

However, working with a broker who specialises in flexible mortgages can speed up this search. They can evaluate your needs and circumstances, and help you find a mortgage lender whose product has the flexibility you want at the best price.

The advisors we work with are experienced in finding flexible mortgages for people like you. They also have access to the entire market, including lenders who are not on the high street.

For a free, no-obligation chat with the right mortgage broker, make an enquiry today. Our broker matching service will pair you with an expert whose knowledge and expertise are suitable to your needs.

The types of mortgage you can get

There are several different types of flexible mortgage products on the market. Here are some common ones you can choose from:

Flexible repayment mortgage

A repayment mortgage means you pay off some of the capital and interest you owe each month, meaning you should eventually reduce your debt to zero at the end of the full mortgage term, which is normally about 25 years. This product will usually give you the full range of control over your monthly repayments, including being able to make overpayments, underpayments, or take a payment holiday

Flexible tracker mortgage

A tracker mortgage has a variable rate of interest, meaning your monthly repayments can change from month to month. The mortgage “tracks” an interest rate linked to an external source, usually the base rate set by the Bank of England. If the central bank increases or decreases the base rate, your payments will increase or decrease as well.

A tracker mortgage can become expensive if the Bank of England starts to rapidly increase the base rate. This is when a flexible tracker mortgage can prove useful, as it will come with a “droplock” feature allowing you to switch to a fixed-rate mortgage, locking your interest rate and guaranteeing you’ll pay the same amount each month.

Flexible fixed rate mortgage

Several lenders offer flexible options with their fixed rate mortgages, including overpayments and payment holidays. A fixed rate mortgage comes with a guaranteed interest rate that won’t change for a set period of time, which is usually two, three or five years. Some providers even offer 10 year fixes or longer. These products appeal to borrowers who want stable and predictable payments for the long term.

After this initial period, you’ll move to the lender’s standard variable rate of interest. This can be very expensive, so borrowers usually remortgage to a cheaper deal at the end of their fixed rate term.

Flexible buy-to-let mortgage

If you own a property and rent it out for other people to live in, or are thinking of investing in a rental property, you will need a buy-to-let (BTL) mortgage. A flexible BTL mortgage will usually include features such as making overpayments or an offset savings account.

Flexible lifetime mortgages

You might come across this product when researching flexible mortgages. A lifetime mortgage is a type of equity release allowing someone, usually a retiree, to borrow money against the value of their property. Usually the loan is not repaid until the borrower dies, although the interest rates on these products can be expensive.

A flexible lifetime mortgage allows you to take smaller amounts of money over time instead of a single lump sum. This “drawdown” facility means you can take cash payments as and when you need them, which can work out cheaper over the long term.

Flexible lifetime mortgages also usually allow you to make repayments whenever you like, without charging fees. These repayments can help reduce the interest or balance of the loan, leaving more money for your family to inherit.

Equity release mortgages are very complex, and it’s best to speak to a financial advisor to see if they are right for you.

Flexible offset mortgage

This product allows you to use your cash savings to reduce your mortgage interest without committing to making an overpayment.

With a flexible offset mortgage, you can open a savings account offered by your lender and any cash saved in this account will “offset” an equal amount of your mortgage balance, reducing the interest you pay. So if your mortgage balance was £200,000 and you had £20,000 saved in an offset account, you’ll only accrue interest on £180,000.

Also, money saved in an offset account doesn’t usually pay you any interest. Instead, the interest you would earn can be used to either pay down your mortgage balance, reduce your monthly repayments, or reduce a future payment.

An offset mortgage is useful for someone who has a lot of cash savings, as often the interest saved on your mortgage will be more than you can earn in a regular account.

You can find out how much you could save on your interest payments with an offset mortgage by using our calculator below.

Lenders and rates available

If making larger overpayments than the standard 10% cap is important to you, there are several lenders with much higher caps. For instance, one option is Swansea Building Society, which allows borrowers to overpay 99% of their mortgage without penalty so long as they have a minimum balance of £500. This residential mortgage for borrowers with a 20% deposit has a relatively expensive interest rate of 5.80%, at the time of writing (May 2023).

If you want a flexible equity release product, Legal & General is one of several lenders that offers a flexible lifetime mortgage with a drawdown option. L&G’s product lets you release a minimum of £10,000 initially, then future payments of as little as £2,000.

If you had cash savings and wanted an offset mortgage, there are a few lenders available, including well-known names such as…

• Natwest
• Barclays
• Scottish Widows.

As an example, Scottish Widows offers flexible mortgages that come with an offset savings account. Money deposited in the offset account can be used to reduce the term of the mortgage, or the monthly repayments. However, going directly to Scottish Widows may prove expensive overall, as you could even find another lender charging a lower interest rate.

How to choose the right flexible mortgage product for you

Given the range of flexible features, finding the best mortgage for your situation can be tricky. It can be difficult to find a flexible mortgage as well, because lenders may not call their deals flexible, but offer features like overpayments and payment holidays as part of their regular product range.

Getting a broker to help you wade through all the options available can save you time and money by finding the right deal for you. A broker can also help you get a deal at the best price, as going directly to lenders can be more expensive, as you may not choose the right deal or product for your circumstances.

Eligibility requirements

There are a wide range of flexible mortgage lenders available on the market, and each will have different criteria on who they will lend to.

Typically, flexible mortgages are not available to all customers. Borrowers with a poor credit history, or on benefits, may be less successful when applying, as lenders may fear they will be unable to make overpayments or more likely to request underpayments or payment holidays. Flexible mortgages can have higher interest rates, meaning the monthly repayments will be more expensive, and so it might be harder to pass a lender’s affordability checks.

If you apply for a flexible mortgage and are rejected, this can leave a black mark on your credit score, making it more difficult to secure a mortgage deal. If you’re unsure whether you’ll qualify for a flexible rate mortgage, it’s advised to speak to a mortgage broker. The brokers we work with will be able assess your situation and direct you to lenders who are more likely to accept your application, helping you avoid any unnecessary stains on your credit score.

Speak to a flexible mortgage specialist today

If you want a mortgage that offers you more freedom and control over your monthly repayments, a flexible mortgage may be right for you.

A flexible mortgage broker can help you find a product with the flexibility features that will most benefit you. The brokers we work with offer complete transparency about what’s in your best interest, which might mean not going with a flexible mortgage and choosing a traditional mortgage instead.

For a free initial chat with a mortgage expert with no obligation to proceed, call us today on 0808 189 0463 or make an enquiry online.