Interest only mortgages

BobQ

A friend of mine has been bending my ear about a letter that he has just got from a mortgage provider about his BTL property. He has had a loan secured on the property for about 10 years and the loan has about 10 years to go. Part of it is interest only and covers about 15% of the value.

His gripe is that although he has never defaulted on a payment the provider wants him to formally state his plan for repaying the loan. Its a while since I had a mortgage but it seems a reasonable question to ask, in fact I am surprised they allowed him an interest only loan without asking this in the first place!

Anyway, my question is whether this is normal practice or should he be concerned that they ask him? His plan is quite simple- to sell the house before the end of the term. But he is worried that the letter asks for evidence.

holly_hobby

This is following FSA (now FCA) remit re the lenders responsibility to ensure the mortgagor can repay an IO loan at end of term. Which was actually in respect of regulated mge business (of which BTL arrangements are not, they are in fact non-regulated commercial borrowing).

That is why BTL IO mges are still offered by all BTL providers.

But of course the mge lender, as the mortgagee, does have a right to ask (even on unregulated borrowing) how the loan will be repaid at scheduled redemption, to which I am assuming your pal does have a repayment plan, which if not a vehicle itself/overpayment, will be by sale of the property ?

If so, thats all he needs to tell them - as it isn't his primary dwelling they should readily accept disposal of the property as sufficient means.

Hope this helps

Holly

Thrugelmir

BobQ wrote: »

Anyway, my question is whether this is normal practice or should he be concerned that they ask him? His plan is quite simple- to sell the house before the end of the term. But he is worried that the letter asks for evidence.

The answer will in itself provide evidence. Should, in the future the lender seek possession of the property. If the debt is not settled on the due date.

BobQ

Thrugelmir wrote: »

The answer will in itself provide evidence. Should, in the future the lender seek possession of the property. If the debt is not settled on the due date.

I think you are right but he seems to feel its an insult to even be asked the question when he always pays the mortgage on time.

opinions4u

He's easily insulted.

What is his plan?

lastalvast234

I need to choose the best lender for a new home purchase that will provide me the least fees while giving me the best interest rate? Mortage banks tend to offer me fewer fees, but the rate is a little higher. Also, which is most efficient in doing the loan? I am doing a VA loan.

Annisele

lastalvast234 wrote: »

I am doing a VA loan.

I'm afraid you're unlikely to get much help here; this is a UK forum and we don't have VA loans this side of the pond.

Thrugelmir

BobQ wrote: »

I think you are right but he seems to feel its an insult to even be asked the question when he always pays the mortgage on time.

Perhaps it's a realisation that his plan isn't going to pay dividends. Selling the house to clear the debt is the easy part. Then only creates a further series of issues to be resolved in later life. Particularly in retirement. As this is the time in life where owning your home really pays off.

holly_hobby

BobQ wrote: »

I think you are right but he seems to feel its an insult to even be asked the question when he always pays the mortgage on time.

He pays the chargeable monthly interest on time - as a result the debt itself remains ringfenced and unaffected, which is why the lender is enquiring what his repayment stratergy is.

Your pal really shouldn't be offended, its a reasonable question from the lender. After all if you lent him/her £100 and they just paid you interest each month, you would at some point ask what their plans were with regards to actually repaying you the £100 ?

Its nothing to worry about (but something that you pal obviously needs to think about from a personal perspective), and easily answered - he either has a repayment vehicle(s) or other property to sell/is saving hardcash to redeem, or will simply sell the property in question instead.

Hope this helps put your pals mind at rest

Holly x

sharpe106

You have already said he plans to sell the property, surely all he needs to do is tell them that. Hardly insulting

amnblog

Does the lender know it is a 'buy to let', or is this originally a householders residential mortgage and he has since let it out?