Evidence of my repayment plan

teacherphil

I have an interest only mortgage with Birmingham midshires. It's currently tracking at 1.99% above the base rate so it's working out really well for us. We have just received a letter reminding us that we are interest only which included the sentence:-"Periodically we will ask you to provide evidence of your repayment plans. If you are unable to satisfy us that your repayments remain on track to repay the outstanding balance on your mortgage we may ask you to transfer some, or all of your mortgage onto a capital and repayment basis".
Basically this means paying a higher interest rate.
My payment plan is that I have been overpaying at a rate which will pay off the full amount in 20 years. (I have 21 years left on the mortgage). The plan is to continue with the same sized overpayments on top of my interest until it is payed off. The things I can't figure out are:-
1. Can they make me change my mortgage to a repayment?
2. Is my repayment plan what they are looking for, or am I better opening an official endowment policy
3. Is this just to try to make me swap from my low interest rate onto a higher one?

Any help would be appreciated.

Phil

dunstonh

Basically this means paying a higher interest rate.

Why would it mean paying a higher interest rate? The fact whether its repayment or interest only has no impact on the rate.

1. Can they make me change my mortgage to a repayment?

yes

2. Is my repayment plan what they are looking for, or am I better opening an official endowment policy

You cant buy endowments any more and you wouldnt want to even if you could. Plus, if you were to set up an S&S ISA now (which is the modern equivalent) then it would have to be of sufficient contribution to be able to hit the mortgage balance within the remaining term. That would probably make it more expensive than being on a repayment mortgage.

3. Is this just to try to make me swap from my low interest rate onto a higher one?

No. As repayment method doesnt alter the interest rate.

teacherphil

When we originally took out the mortgage, interest rates were higher and it tracks the base rate. We are currently paying 2.5%. If they changed us over to a repayment mortgage would this be one of their current products (around 6%)? or would they make it a repayment based on our current interest arrangements (variable tracker @ 1.99 above the base rate)?

holly_hobby

You would retain the same interest rate - the only thing that would obviously change is your monthly mge payment.

Hope this helps

Holly

Thrugelmir

teacherphil wrote: »

The plan is to continue with the same sized overpayments on top of my interest until it is payed off.

Then why not switch your mortgage onto a repayment basis in any event.

Or do you wish to control when the capital repayments are made?

teacherphil

I was under the impression that I would not be able to get a deal that was anywhere near the one that we are currently on. We wanted a bit of flexibility when we first got the house as we were both under threat of redundancy, hence the interest only. I was only planning to swap when the base rate increased to a level where other mortgage lenders became cheaper.
The other reason that I am not too keen to change to another mortgage is that we would be borrowing about 85% - 90% of the value of the house. The deals available for this amount seem very poor value.

As far as I am aware, the mortgage I am on currently is the lowest interest rate I can get.

teacherphil

Thrugelmir wrote: »

Then why not switch your mortgage onto a repayment basis in any event.

Or do you wish to control when the capital repayments are made?

I suppose I like the idea of having a "just in case" option.

Brodiebobs

I had a similar thing with C&G they didnt ask to see proof they just said as we were on interest only would i consider switching to repayment. I phoned and the repayment mortgage was actually £100 less a month than what we were paying at the moment in over payments... so to me didnt make sense. They also offered to put us on a new fixed rate repayment mortgage "fee free" and waive the redemption figure (were currently 4 years into a 5 year fix) but the interest rate was 1.5% above what were currently paying on a fix!!! I politely declined and they have never contacted us since, but would it be possible for them to force you onto repayment?

edited to add i also think it was a money making exercise for the bank.

Thrugelmir

Brodiebobs wrote: »

edited to add i also think it was a money making exercise for the bank.

Also lenders have an increasing level of duty of care towards their customers. Interest only mortgages of recent years will still be a concern for a number of years.

With regards to LloydsHBOS (of which C&G is part). Its been estimated that around 60% of the total mortgage book of £390 billion is exposed to the risk of higher interest rates.

So encouraging regular repayment of capital debt is of benefit to both customer and lender alike.

Thrugelmir

teacherphil wrote: »

I was only planning to swap when the base rate increased to a level where other mortgage lenders became cheaper.

Highly unlikely to you'll get a better rate than base +2% in your mortgage lifetime. The loss making rates of recent years are gone for ever.

Brodiebobs

Thrugelmir wrote: »

Also lenders have an increasing level of duty of care towards their customers. Interest only mortgages of recent years will still be a concern for a number of years.

With regards to LloydsHBOS (of which C&G is part). Its been estimated that around 60% of the total mortgage book of £390 billion is exposed to the risk of higher interest rates.

So encouraging regular repayment of capital debt is of benefit to both customer and lender alike.

I understand the background of it, but if they were wanting people to do this why wack a healthy dollop of interest on top? surely if they just said "we shouldnt have sold you interest only, we would feel happier if you were on repayment we can do this for £x a month" rather than write to you to get you to call their 0845 number to pressure you into swapping to a higher rate mortgage, they also suggested extending term to make the repayment more 'affordable', and even tried to sell me their home and life insurance while i was on!!
Bearing in mind im also already overpaying above the repayment figure, how can it be interpreted any other way than increasing profits?