Interest only mortgage for self-employed?

emv

Hi

I have a close friend who I'm supporting through her divorce. She's self-employed via a limited company & earns £28k per annum. She's also pregnant,expecting a baby in May so her earnings will be much lower from now on. She lives in a house worth £350k with a mortgage of £250k. Her husband is apparently owed £30k of equity.

She met with her mortgage company recently who apparently offered to switch her to an interest only mortgage which, if she can pay by herself for 12 months, can be transferred into her name only.

Her divorce solicitor has been highly recommended but doesn't seem to have said much about her financial situation & she understands that she can stay in the house until herchild is aged at least 11 & then sell it & repay the £30k of equity.

I'm concerned that this seems both too good to be true from her point of view & not very sensible from the mortgage company's point of view. Over the next year she plans not to work & to spend her savings on paying the mortgage. But she'll then have no savings has no work at all lined up so may well be unable to continue making the mortgage payments. I thought that mortgage companies asked to see proof of future work when you were self-employed? I also thought that interest only mortgages had to be supported by some way of paying off the mortgage. But is this because there is some equity in the property?

I'm worried that she may have misunderstood the conversation with the mortgage company (no paperwork yet so no way of checking) and that she may have an unrealistic view of the future...

Emv

Thrugelmir

Anybody that takes on a £250,000 mortgage on a current salary level of £28,000 needs to think very carefully. As the risks are considerable. As even over the next 11 years she be little more than renting the property. Banking on property prices booming again is sheer fallacy if that's the idea.

With a £100k of equity in the property. Would she be able to find somewhere else to buy in the locality?

koexelek

Thrugelmir wrote: »

Anybody that takes on a £250,000 mortgage on a current salary level of £28,000 needs to think very carefully.

I can't see her current lender agreeing to that.... at any stage... even if she does make interest only payments for the next 12 months.
They won't release a borrower from a £250k mortgage if the remaining borrower is on £28k.
I think they are leading her down the garden path

Conrad

There are potential solutions, for example if she 'intends' to take a couple of lodgers. She needs a broker on this. Her own lender has made a mistake and it will go wrong once they check her income. The Solicitor wont mention MORTGAGE ISSUES AS HE WANTS TO KEEP HIS FEES COMMING AS LONG AS POSSIBLE - if your freind subsequently cannot get a mortgage, the Solicitor has still had some nice fees............

Thrugelmir

koexelek wrote: »

I can't see her current lender agreeing to that.... at any stage... even if she does make interest only payments for the next 12 months.
They won't release a borrower from a £250k mortgage if the remaining borrower is on £28k.
I think they are leading her down the garden path

Agree totally. Without knowing what precisely was said and discussed between the 2 parties its difficult to comment.

emv

Thanks, everyone, leading down the garden path is one of my concerns. Her husband wants to be released from the mortgage ASAP in order to move on with his life so definitely wouldn't be happy with his name on the mortgage for more than 12 months. He'd prefer to sell the house now but the fact that's pregnant islikely to prevent that. She could, of course, move somewhere cheaper (which is what her other friends & I have been suggesting) but with £70k deposit & £28k income, she probably can't afford more than a 1 bed flat & would prefer to stay in her 2-bed house!