Switching to Interest Only

Redbillie

My friend who has been with her lender for 20yrs+ is struggling to pay her capital and interest mortgage due to her job situation. She has approached her lender and asked if they would switch her mortgage to interest only until her job is more secure and she sells her house. Her loan is currently approx only 23% LTV but they have advised her that she "does not have enough income to warrant the switch to interest only"! Surely, this is the reason she needs to change to interest only. She is currently paying around £300pm for capital and interest which would reduce to only £75pm on interest only which she could manage. At present her family are helping her fund the payments but obviously this is not ideal. What should she do? Complain? Go to the Ombudsman? Any help would be gratefully appreciated. Thanks

Thrugelmir

Does she have a job currently?

powerwin

Why is she struggling?

The question is whether the current lender is obligated to allow a switch to interest only. I don't know the answer to that but I suspect that they aren't. Maybe someone more experienced will confirm.

So, the only options would be sort out her finances in other ways, or look at switching to another mortgage provider on an interest only deal. Switching mortgage is expensive, and switching to interest only isn't a great idea financially.

This is not professional advice ...

Rgds

Redbillie

Yes but she only works part-time. She is about to start another part-time job but is awaiting checks etc to be carried out. She is struggling because she used to have her mother living with her who helped with the household bills etc but unfortunately she has recently died.

Thanks for any help.

MBM

Can she not get a lodger?

dunstonh

What should she do? Complain? Go to the Ombudsman?

The FSA said that interest only should not be used as means to make mortgages cheaper and more affordable.

The ombudsman is unlikely to force a lender to change a lending decision which is largely a commercial decision (FOS will not rule on commercial decisions). Plus, the FOS rule on the basis of FSA rules and guidelines.

magpiecottage

dunstonh wrote: »

The FSA said that interest only should not be used as means to make mortgages cheaper and more affordable.

That was more for new business, I think.

Against that, lenders are supposed to be sympathetic to borrowers with difficulty.

There is, though, the consideration that interest rates are at historically low levels and there is no margin of error if they go up.

Without knowing more of the actual circumstances it is difficult to give a definitive answer.

opinions4u

If somebody is in financial difficulties with their mortgage, interest only is NOT the solution.

Reduced mortgage payments may be the solution in the short term, but this could be a reduction to a level that is higher (or lower) than interest only.

A lender is quite within its rights to respond to a request for a reduced mortgage payment by establishing what income and outgoings a borrower has and prioritising these.

Primary bills, for me, are things like food, power, water, council tax and mortgage/secured loan. If income is not enough to cover these, then the lender should provide a temporary reduction in required payments while the income problem is resolved or the property is marketed and sold. Where there is little equity, this should not be an ongoing situation though.

If the borrower has secondary bills such as unsecured loans, Sky, mobile phone, gym, internet etc, but has income enough to pay the primary bills above, then I really don't see why a mortgage lender should be reducing the required payments so that someone can pay their credit card on time or watch subscription TV.

Much better to get a default or CCJ than a possession order.