Declined for interest only - any idea why?

bexterswell

I applied for a interest only mortgage with HSBC, met their LTV and repayment vehical critera, thought it had been approved, but the mortgage underwriter has just declined me. Any clues to why?

House value is: £420k
Outstanding balance: £294k

Debt
£10k car loan
£12k credit card
£3.5k overdraft

Income:
£130k a year salary, with bonus of around £5-7k
Options in a firm that should pay out in approx 5years

Repayment vehical:
£250 per month into an ISA
pension

If it's the debt, would it be worth borrowing the money off family to clear the debt and then reapplying?

Or if we went in for a 2-5year fixed interest only? One of my thoughts is that they might have thought we wouldn't have the mortgage for long (short term lending is loss making!) so if we reapplied on the 5year fixed?

We've asked for specific details as to why, but i'm not sure they have to tell us?

Any advice or clues would be greatly appreciated.

GMS

£3,000 per year isn't going to clear the balance soon enough.

Did you ask if they would do the mortgage on a repayment basis?

bexterswell

GMS wrote: »

£3,000 per year isn't going to clear the balance soon enough.

Did you ask if they would do the mortgage on a repayment basis?

Repayment basis? as in capital repayment? We're currently with them on an capital repayment mortgage and it's up for renewal in a couple of months. We got the house revalued from £334k to £420k (substantial renovations!)....maybe that has something to do with it?

Pont

Or isn't it more to do with 'most' banks not touching repayment mortgages with a bargepole these days? I don't think it's 'personal', merely that the big lenders don't like repayment only deals now.

Also, bester, have you attempted to renegotiate your deal? An estate agent's valuation will probably be very different to a mortgage provider's valuation. I hope it goes well with you (and of course all cases are different), but many people are having a nasty shock insofar as they can't get a new repayment only deal.

A surveyor friend of mine (very highly experienced), has said to take estate agent's valuations with a 'pinch of salt'. The reason being - the mortgage provider simply doesn't want to take a punt these days, and so give 'unrealistic' valuations to get rid of!

ValHaller

bexterswell wrote: »

Repayment basis? as in capital repayment? We're currently with them on an capital repayment mortgage and it's up for renewal in a couple of months. We got the house revalued from £334k to £420k (substantial renovations!)....maybe that has something to do with it?

I doubt that the revaluation has acted against you. You income is fine, but while your credit is low, you have to wonder why on your income you need it at all - as underwriter, just to be provocative, I would be more dubious of your grasp of finance with 2 months income borrowed than I would of someone on £40k.

But the real killer will emerge when you go to some amortization calculator and work out how long you will need to pay £250 into an ISA to clear £294k. This will be what is bugging the underwriter

sterlingstash

Is this a joke? To qualify for interest only, I thought you now typically need to demonstrate that you already have an investment that can cover the whole mortgage you are asking for, typically by 120%. So only those who don;t actually need a mortgage could access an interest only mortgage (but still useful for people who think they can get a better return on their investments than the current mortgage rates)

Bexter, £250 a month is nothing on that scale of mortgage, unless you happen to be adding it to an existing half million pound investment pot.

sterlingstash

Or perhaps it is just the LLoyds group which is the joke. They will only accept 80% of current investment value as the repayment vehicle. ie, for every 100k borrowed, you already need to have £125k S&S ISA at point of application.

eviekins

I genuinely mean this in the nicest possible way, but you earn 130k a year (plus over 10k in bonus's) and you're after an interest only mortgage? You have over 25k debt and obviously not the money put aside in savings as you mention borrowing the money off family. What on earth do you spend all your money on? Is this for real?

Thrugelmir

sterlingstash wrote: »

Or perhaps it is just the LLoyds group which is the joke. They will only accept 80% of current investment value as the repayment vehicle. ie, for every 100k borrowed, you already need to have £125k S&S ISA at point of application.

Maybe that's because stocks fall as well as rise.

Thrugelmir

bexterswell wrote: »

If it's the debt, would it be worth borrowing the money off family to clear the debt and then reapplying?

Why not repay it from your salary?

£130k salary and using an overdraft. Suspect there's far more to your tale. Something HSBC will have detected on your historic credit profile.

As others have said, saving £250 a month to repay the debt. Hopelessly short.

Now you want an interest only mortgage. Doesn't add up.

kingstreet

Is the bank willing to lend you the money, on capital and interest?

Is it declining the amount, a mortgage of any size, or the repayment method?