Interest only Mortgages - help please

Colliebird

Hi there,

Wondering if anyone can offer some advice.

At the moment we have an interest only mortgage
We want to sell our home
Santander explained that we need to pay the outstanding balance back
Reapply for a new mortgage on the new home - but they have told us that due to new regulations it will be difficult to secure an interest only mortgage unless we have something in place to pay it back over the 23 years

At the moment our mortgage is £550
We are making over payments of £2k a month
I thought this would be enough evidence to convince them that the balance is going down and the morg affordable however the advisor explained we could stop over payments anytime - so we need something more secure in place to convince them that the balance can be paid in full (she was not able give financial advise).

My partner has a pension up and running
I have a share save scheme with work
We have a deposible income of about 2k once bills and everything have been paid
What can we set up to ensure we are able to obtain an interest only mortgage in terms of a saving plan?

Advisor mentioned and ISA (?) but I understand there are limits to how much you can save so what would be the point it putting the money there as it sounds like we need something long term - or for the life of the mortgage.

We could afford repayment mortgage but we like the flexiblity of interest only - paying more when we can / want and smaller amounts when other things come along.

Flexible or off-sets have higher interest rates.
:money:

Thanks so much for your help!

Thrugelmir

colliebird wrote: »

We could afford repayment mortgage but we like the flexiblity of interest only - paying more when we can / want and smaller amounts when other things come along.

Flexible or off-sets have higher interest rates.
:money:

Thanks so much for your help!

As the customer you have to accept the terms offered to you. If you don't like them look elsewhere.

You could always take the mortgage over the longest term allowable on a repayment basis. Thereby reducing the payments to a minimum level, and allowing overpayments as you wish.

holly_hobby

Without going into the merits of an offset mge if you typically hold a good amount of savings, you may well find that the combined cost of your interest only and required investment into an appropriate repayment vehicle, may be equal or even in excess of the equivilent repayment under a capital and interest mortgage - without any of the certainty of course (exc investment into cash isa's).

Appropriate repayment vehicles would need to be consistent with your risk profile, the more cautious the investment vehicle, the lower the return, and the higher the investment reqd to obtain the target sum.

Notwithstanding your risk profile, appropriate typical mge repayment vehicles are pension (subject to relevant earnings, lifetime contribution and TFC limits), Isa's both cash and stocks & shares (subject to annual permitted allowances), bonds, gilts, stocks & shares (os of ISA wrapper).

You should exhaust tax efficient vehicles where possible, and then hold tax bearing investments either split or wholly in 1 name, to minimise/avoid exposure to higher rate tax bands.

If you are determined to remain either wholly or partly on interest only, I would recommend seeking the services of an IFA in order to source the most suitable and appropriate repayment vehicle to your circumstances, requirements and risk profile.

It should be further noted that most lenders (os of offset or flexible mges) will have an annual penalty free overpayment allowance (if a penalty free product or svr is not selected,) so make sure you fully consider the mge conditions before selecting your product - as if you exceed the permitted amount you will suffer penalty fees.
Hope this helps

Holly

dunstonh

At the moment our mortgage is £550
We are making over payments of £2k a month
I thought this would be enough evidence to convince them that the balance is going down and the morg affordable however the advisor explained we could stop over payments anytime - so we need something more secure in place to convince them that the balance can be paid in full (she was not able give financial advise).

There is logic in what they are saying. You could switch to repayment basis.

What can we set up to ensure we are able to obtain an interest only mortgage in terms of a saving plan?

Its not worth it. Repayment vehicles would cost more than a repayment mortgage and with less risk.

Advisor mentioned and ISA (?) but I understand there are limits to how much you can save so what would be the point it putting the money there as it sounds like we need something long term - or for the life of the mortgage.

It would mean that you couldnt complain to the lender that they failed to make sure you had a repayment vehicle. The choice to spend is yours. That said, lenders can make checks on the status of the repayment vehicle (historically they havent but I have heard of cases post credit crunch) and it could be treated as a breach of contract if you have done that.

We could afford repayment mortgage but we like the flexiblity of interest only - paying more when we can / want and smaller amounts when other things come along.

Not a very logical way of repaying a major debt though. Moving to a repayment basis doesnt prevent over payments. It just ensures a minimum amount is repaid to hit the mortgage end date.

Colliebird

Thank you very much for your advise!

I dont wish to abuse your knowledge but could I please pick your brain since you are a financial advisor we would really appreciate it.

Would you know if different deposits are required for interest only and repayment morg -
do we need to worry about Ltv with a repayment morg and does the deposit affect how much you can borrow?

We want to borrow 330k
Myself and partner earn 80k
Deposit 95k
Santander tell us they can lend us up to 415k
We only need 330k
If we out down say 80k (chance we might not pull 95k from the morg)
would it affect how much we could borrow?

Thanks very much for your help!





If we put less down say 80k would this affect how much they would lend us?

Colliebird

Thanks so much for your speedy response really helpful

dunstonh

Would you know if different deposits are required for interest only and repayment morg -

Exactly the same. The only difference is one repays the capital the other doesnt. Everything else is the same.