Forced to repay capital + interest from Interest only

CPayne

Hello,
I am looking to purchase a new property and currently have an interest only mortgage with Nationwide. I have an ISA which i am paying into as the repayment vehicle.

I need a relatively small amount more (45-50k) in addition to my existing mortgage which i can 'port' over. However, Nationwide has said that because my LTV is above 75%(currently just under 85%) i must pay the capital and interest on the entire mortgage amount.

This is obviously a significant increase in monthly outgoings even though i have a repayment vehicle in place.

Has anybody had a similar experience or know of an alternative solution?
Or are there any lenders which do an Interest Only mortgage above 75% LTV

Many Thanks
Chris

Engeroosi

Unfortunately what ever the bank wants you have to do if you want their money!!
Is the rate your on your mortgage lower than that your earning in the ISA?

JimmyTheWig

I would guess that the credit crunch has happened between when you first took out your mortgage and now. Basically, this means there is less money to be lent to people. Which means the banks can choose the least risky options.
Also house prices aren't particularly rising.

When house prices are rising rapidly, banks are almost bound to make money selling a mortgage as there is bound to be equity in it if you can't pay and they need to sell it, as it will be worth more than it was when you took out the mortgage. But if prices aren't rising (and in some places they are actually falling at present) then this becomes more risky to the bank.
And if there isn't as much money to be lent out then they won't take the risky option.

A repayment mortgage is safer for the bank as each month you are reducing the amount you owe and so increasing your equity. So for a high loan-to-value, the bank is going to want you to go for this option in today's climate.


So, what can you do?
Is your ISA cash or stocks and shares?
If it's stocks and shares then you need to think twice before withdrawing the money from it due to market fluctuations. So I'll assume from now that it's cash.
Is the money tied in to the ISA (e.g. for a fixed term or a regular saver)?
If not, it would make sense to me to take the money out of the ISA and use this to fund all or some of what you want the money for (an extension, I'm guessing).
Obviously this will leave you short for repaying your mortgage when the time comes, so to make up for that you will have to increase payments into your ISA in future. But that should work out similar to what your increased payments would have been with the new mortgage.

If you are getting a significantly better interest rate on your ISA than you are paying on your mortgage (and you'll pay on the new money you borrow, which I doubt) then this could make the above not such a good idea, in which case give us the details.

Alternatively, do what the bank says and go to a repayment mortgage. Stop putting any more money into the ISA and use that to fund the repayment. This shouldn't work out that much more. If necessary (and possible) you may consider notionally increasing the remaining term of the mortgage. (You can still use your ISA to pay off the mortgage in full at the point when you were planning on doing so.)


If you want more details on any of the above then feel free to ask. The following would be helpful...

How long is left to go on your mortgage?
What is your outstanding balance?
What is your ISA balance?
What interest rate do you pay on your mortgage?
What interest rate will you pay on the new money?
What interest rate do you receive on your ISA?