MSE News: Hope for 'mortgage prisoners' amid lending clampdown

beecher2

fooddestroyer wrote: »

Thanks.

A friend tells me that it is unwise to transfer over to repayment in case we struggle, and we can't return to interest only. But rather, save and make some capital reductions annually?

Yes, you should probably stay on interest only. Overpay as soon as you have the money if your mortgage interest rate is higher than your savings interest rate, save and overpay annually if your savings are at a higher rate (IF you can trust yourself not to spend the money). Save up a buffer first though.

fooddestroyer

So NRAM are saying that it'll cost me £739 pm [4.79%] on repayment over the remaining 29 years.

We're currently paying £554 interest only SVR.

Over the next 12 months thats a total of £2220 more than usual. A lot of £ for a young family on average income.

I think the capital option might be better, and then, by 2014, we might be in a position with the "new rules" to negotiate a better deal.

Comments?

jamesd

Thrugelmir wrote: »

Which means that even if an interest only mortgage is taken out. That the borrower has to be able to afford the mortgage as if it was on a repayment basis.

Not so. Repayment basis calculation is only required if the repayment strategy isn't credible and affordable. A plan to repay from pension commencement lump sum when there is already a significant pension balance would be one method that is credible but might not be affordable on repayment basis.

Thrugelmir wrote: »

So blocks the borrow today repay tomorrow on the basis that salaries\house prices always rise strategy.

Yes, that's blocked to some degree, though not completely for salaries if there is some non-speculative aspect to the increases. House price rises is an example used for an unacceptable strategy.

jamesd

fooddestroyer wrote: »

So NRAM are saying that it'll cost me £739 pm [4.79%] on repayment over the remaining 29 years.

We're currently paying £554 interest only SVR.

Over the next 12 months thats a total of £2220 more than usual. A lot of £ for a young family on average income.

I think the capital option might be better, and then, by 2014, we might be in a position with the "new rules" to negotiate a better deal.

Comments?

Stick on interest only. You need the flexibility and you're not likely to get that anywhere else. But do overpay until you can get to a loan to value that will be more acceptable to other lenders.

In theory any lender could accept you. In practice I doubt that any others will at around 100% LTV, particularly not on interest only basis.

Over the long term, relax to some degree about your ability to clear it eventually. Wage inflation will gradually increase your ability to afford to make extra payments and in time you will be able to pay off at a faster than repayment rate, while still having interest only flexibility.

Jonbvn

harvey115 wrote: »

I would for sure because the level of interest charged in an IO mortgage at the starting years is not calculated the way lenders do on repayment mortgages.

You pay interest on the outstanding capital amount, regardless of what type of mortgage you have.