Interest Only Mortgage

bombblast1968 · 7 October 2016 at 12:55PM

Warning long story, appreciate your time reading and offering advice.

I have an interest only mortgage taken out in 2006 with Alliance and Leicester which was subsequently taken over by Santander.

I took it out at a quite difficult time whilst going through divorce, via an independent mortgage broker. The mortgage quotation he gave me was based on 10 year term at the time with him saying the term made no different to the quote as it was interest only, but I told him I wanted 25 year mortgage when the paperwork went through and I assumed that is what happened. Clearly I didn't read the paperwork thoroughly when signing, 2 years later I found out the mortgage had been contracted on only a 10 year term.

I contacted Alliance and Leicester who said I had to take recourse with the mortgage broker and get them to contact the bank. The mortgage broker had left and his company would not take any responsibility for his advice or actions. By this time the mortgage had been taken over by Santander and I was suffering with ill health so I never pursued it.

A few years later I contacted Santander to get the term extended and was told they could not extend the term of an interest only mortgage as they did not do them anymore. My only option was to switch to a repayment. At this time I worked part time and had 2 small children, I could not afford the payments on repayment so i had to leave it as it was.

After trying twice more over the past 10 years and speaking with an independent mortgage adviser who was unable to get me mortgage with another lender as I didn't fit the new stricter affordability level and being unable to speak to Santander because the remaining term was too short, it was recommended I try speaking with them personally again.

I have done this today and the results are:

1) They still cannot extend my interest only mortgage, I have to wait until 6 months before it ends and then their interest only mortgage maturity team will write to me with my options.

2) After spending an hour going through the other option of switching to a part interest only, part repayment mortgage, onto a fixed rate, which not only means I start paying the mortgage off and extends my term but also calculated to a lower monthly payment than I have consistently paid for 8 years, they said I failed the affordability checks and they can't offer me this.

This seems ludicrous. I am a very good customer, have never missed a payment, have paid standard variable rate for 10 years, and have a very good credit rating.

The total mortgage is only 61% ltv and on the above option would be 50% repayment 50% interest only.

I have lodged a complaint with Santander but so far the words that have come from those I have spoken to is "you signed the 10 year deal", "you have not organised a repayment vehicle". Whilst I am not disputing that, though I thought I had signed a 25 year term, I have now been in discussions with them to agree a reasonable solution that reduces their current risk (not that I see any) and assures me I do not have to sell my house yet and fixes the mortgage at a rate I know I can comfortably afford. Where is the common sense in them rejecting it?

Can I do anything about this?

Westminster · 7 October 2016 at 1:27PM

I would be investigating a plan b in this situation.

When is your mortgage maturity date?

Perhaps get some valuations etc because you will get a much better value for your house (and maximise the equity you get back from a sale) if you sell it yourself rather than have the property repossessed.

_CC_ · 7 October 2016 at 3:15PM

The simple fact is you're living in a house you can't afford.

Funny_old_game · 7 October 2016 at 4:25PM

Why don't you sell up?

I expect the usual ie kids, schools etc, but you have to face facts, they call most of the shots, not you. Harsh as it seems, it may be your only option.

Santander will maintain its stance, and further movement to the ombudsman would end in tears for you and just prolong the process unnecessarily.

See ombudsmans decision on a search engine and you'll see 99% of cases go in favour of the lender in interest only cases. They go on facts not what you or your broker said years ago.

Good luck, but you may have to make a decision you won't want to think of but ultimately will get you of this no win situation your currently in.

SavingSteve · 7 October 2016 at 4:46PM

Speak to a Broker. Santander don't think you can afford it, that much is clear. As others say nothing will change their mind on that.

BUT - different lenders have different lending criteria. You clearly think you can afford the repayment mortgage, maybe another lender will agree with you. Off the top of my head, Coventry and Barclays have what I would call more generous affordability calculators.

Speak to a good all of market broker.

EDIT - I see you have done this. If this is not an option I agree with the others that you need to sell up and move somewhere you can afford. On a positive note you have 40% equity there, so will have a sizeable deposit.

foxy-stoat · 7 October 2016 at 4:49PM

So in 2006 you took out what you thought was a 25 year interest only mortgage - in 2008 you find out its only a 10 year one. You needed to of stepped up your payments to your repayment vehicle in 2008 to compensate for the 15 year shortfall.

How much have you managed to save in your repayment vehicle so far? You may be able to use this money to clear down a good chunk of the outstanding balance and try to renegotiatewith another lender or sell up and buy a property more suited to your finanical situation.

dunstonh · 7 October 2016 at 7:29PM

This seems ludicrous. I am a very good customer, have never missed a payment, have paid standard variable rate for 10 years, and have a very good credit rating.

Problem is that you are not a good customer. Yes, you may not have missed a payment but you are not paying off the capital. Even though you are free to do so and have been at any time since you took the mortgage out. You are a high risk borrower who cannot afford the mortgage.

Can I do anything about this?

Put the house on the market. Sell it, repay your debt and start again. You have gained in the property prices and maybe a clean break and buying a more affordable property will be the answer.

Jhoney_2 · 7 October 2016 at 8:45PM

Let's face it, RV's were not as important to lenders at the time.... and....

By this time the mortgage had been taken over by Santander and I was suffering with ill health so I never pursued it.

A few years later I contacted Santander to get the term extended and was told they could not extend the term of an interest only mortgage as they did not do them anymore. My only option was to switch to a repayment. At this time I worked part time and had 2 small children, I could not afford the payments on repayment so i had to leave it as it was.

Let's no let our business opinion on the OP's choices cloud our assistance if/where we can offer it.

I'm afriad funny old game has all your cards laid out.

Best of luck.

csgohan4 · 8 October 2016 at 8:46AM

10 years, 25 years, what would be the difference in your case. You haven't paid any capital in the last 10 years, what makes you think you can in the next 15 years??

Your burying your head in the sand and it is always your responsibility, because you signed the paperwork, you saw an opportunity and took it without looking at the consequences.

In regards to being a 'good' customer and keeping payments and not defaulting, well your supposed to.

I don't get rewards for paying my mortgage nor do I expect one, it is my contractual obligation to do or I risk repossession of my house as clearly stated.

I'm sorry if all this is hard to hear but you have to seriously consider selling your house and cutting your losses.

Hope it goes well

bombblast1968 · 8 October 2016 at 10:16AM

Thank you all for taking the time to respond to my posting, I appreciate all your comments.

I perhaps should have given more information regarding my decisions but I felt the post was long enough already

Jhoney thank you for your words, I do feel there is a lot of comments here more on judgement of my choices rather than offering real assistance.

Repayment vehicles were never checked, self cert mortgages were very much allowed. However I never took out a mortgage I could not afford in terms of paying the monthly payment. Even at age 19 when my first mortgage went up to 15% interest rate I never missed a payment.

The assumption by most responders is that I don't want to sell my house and that's a reasonable assumption for most. However the point here is that I don't want to sell it YET. I am just looking to stabilise things for 5 years minimum whilst my children go through university, the timescale for which I had expected the 25 year term would have allowed (if only I had checked the paperwork, I know!) After this they plan to move out and I can sell which will pay off the mortgage and give me equity. I have another property overseas.

I guess it's all about perspective. From my perspective I know I am no risk. From the banks perspective in their computer programme I am. Wish we could go back to days when you could visit the bank manager and they had authority to take a more personal view.

It would seem here my best chance of getting what I want is either find a job paying an extra £20k a year which from the banks perspective puts me in a position to afford a mortgage that has a payment £100 less than the payment I've been making for 10 years,

or wait 14months, paying SVR at the monthly payment which is even more than the bank thinks I can afford and is not stable and not paying any capital off until their interest only maturity team comes along to slap me on the wrist and comes up with a payment plan to save me being evicted!

)

Who's knows what will happen in a year, we could be hit by a hurricane!

Much thanks to you all.

dunstonh · 8 October 2016 at 10:49AM

Repayment vehicles were never checked, self cert mortgages were very much allowed. However I never took out a mortgage I could not afford in terms of paying the monthly payment. Even at age 19 when my first mortgage went up to 15% interest rate I never missed a payment.

By taking out a mortgage on interest only basis without a repayment plan means that you either couldnt afford it or were foolish. Not missing a payment on an interest only mortgage but not having a repayment plan does not make you a good credit risk.

I guess it's all about perspective. From my perspective I know I am no risk. From the banks perspective in their computer programme I am.

It is not to do with a computer. You are higher risk because of the interest only with no repayment vehicle.

Wish we could go back to days when you could visit the bank manager and they had authority to take a more personal view.

You mean the stupid days when people of high risk could borrow money or the better days when the local branch had more discretion of lending locally but you were forced to show and maintain your repayment vehicle?

It would seem here my best chance of getting what I want is either find a job paying an extra £20k a year which from the banks perspective puts me in a position to afford a mortgage that has a payment £100 less than the payment I've been making for 10 years,

Is that £100pm less based on a repayment mortgage vs your interest only mortgage?
Is that £100pm based on the higher interest rate that is likely to occur at some point in the mortgage? (you dont measure on current interest rates. You measure affordability on a higher rate that is more consistent with the long term average).

or wait 14months, paying SVR at the monthly payment which is even more than the bank thinks I can afford and is not stable and not paying any capital off until their interest only maturity team comes along to slap me on the wrist and comes up with a payment plan to save me being evicted! )

The extension of borrowing only happens if you convert to repayment basis at that time and the debt is affordable to be repaid prior to retirement. If they believe it is unaffordable then they will demand repayment.

Why are you not making overpayments?

Interest Only Mortgage

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