Interest only mortgage ending next year - worried

beachball_2

I took out a 5-year interest only mortgage in 2007 for 160k which ends in 8 months time. I planned to pay it off via sale of shares, which in 2008 dive-bombed and left me with nothing.

Looking for any advice as to whether I'm likely to hit a problem converting to a repayment mortgage next year with the same lender? My credit file is a mess (2 satisfied ccj's from 2008, 16 defaults from 2008 with 50% of those settled).

I earn decent money and realistically could afford 3 or 4k per month mortgage repayments but I'm worried that my credit file is going to screw me.

LTV is roughly 50%.

So my question is, has anyone been in a similar situation and successfully converted from interest only to repayment at the end of the term under these circumstances?

kingstreet

The term of the mortgage is five years?

Or you took out a five year fix on a longer term mortgage?

beachball_2

It's 5 years total term.

I started off with a 130k repayment mortgage with another lender. In 2008 I needed to consolidate some debt, so remortgaged to 160k over 5 years interest only with a different lender and a view to clearing that remortgage in 2009 via sale of shares.

The shares bombed out in the crash and I couldn't repay the mortgage as planned (but have never missed a payment). At the same time, I had a period of 2 or 3 months with no income and so developed a bunch of bad debts.

Since then I'm back on my feet and earning a good crust, but have a feeling the computer will say "no" when it comes to next April.

kingstreet

I suggest you start talking to the lender about extending the term. At this point they are expecting you to repay the capital balance in April 2012. If they are going to decline you, you need to start thinking about alternative sources of funding, never mind the repayment method.

Normally, converting from interest-only to repayment causes no problems and requires no checks. It's the mortgage term which may give you problems if they want to look at affordability.

beachball_2

Well, the time has come and the bank will not extend the term, nor switch me to a repayment mortgage. To make matters worse, I was declined for a remortgage today by a "bad credit" lender. I even offered a years worth of mortgage payments in advance to my current bank & lender in return for 1 more year, by which time my credit will be much cleaner (things will start to drop off in a few months, almost been 6 years). They still refused!

They've given me until the end of April to remortgage. Then I'm not sure what the procedure is for them kicking me out of my home, but roughly, how much time beyond the end of April would I have in order to sell my house if I haven't managed to get a "yes" from anyone by that stage?

Dave_Ham

Hi there,

I do have sympathy here given what you have detailed.

Given your equity, subject to your age and employment status there will be solutions but rest assured they will be expensive..

Pay no-one an upfront fee without any success and use bridging finance as a short term last resort whilst you work hard at clearing your credit files up...

Are you PAYE or self employed?

beachball_2

Self employed with 3 years accounts showing healthy profits.

I had my application declined today, from K e n s i n g t o n mortgages, via a broker specialising in bad credit.

Not sure if there are other, more lenient lenders out there.

I always knew I'd be struggling for the past 3 years as I caught up with various debts and over the past year I'd used Wonga 11 times. That is the reason they declined me. I don't need Wonga any longer though.

Just to add, I don't care how much the monthly payments are, what the interest rate is... Just want to save the house! I can always remortgage in a year or so when the bad credit starts dropping off my file.

Dave_Ham

I am not judging here, genuinely; but a lender will ask for a self employed business where you can demonstrate healthy profits and that potentially pay the mortgage in advance for a year why have you used Wonga so much and how has this recently changed and wont need anymore.

Kensington is the goto plan for old school adverse credit brokers. Did they give a reason for the decline?

beachball_2

Yes, I understand that, I'd sent a written explanation for everything to the broker today, to see if it helps.

You say old school, are you inferring that there could be more suitable lenders to approach, or just that Kensington are usually the best bet for a positive result? The rate was only 4.74 which seemed very low; I'd been ready to pay 15%.

PasturesNew

If you could afford £3k/month repayments ... could you not demonstrate this starting today, by saving that much every month until you need to remortgage. Then you'd have a hefty deposit and you'd stand a chance.

Dave_Ham

There are loads of lenders who are much more flexible than Kensington, that said the rates are not that good..

I can also think of a few other solutions that will be cheaper, can you not sell the house to a family member, with a option price to buy back in 2 years.

Maybe put a second person with a better credit report on the application.

Just shooting from the hip a bit, there will be a solution here due to LTV, just got to find the most cost effective one...