Offset mortgage used as bridging loan?

susan963

dimbo61 wrote: »

Potential rental income !
This will be ignored as you are not getting this yet.
You need to be able to afford the new mortgage from income not rent or what your current property is worth or might sell for in 12/18/24 months

Yeah, I realise that now. Isn't it funny how the banks accept evidence of a pay cheque to give you a mortgage, even though you can lose your job tomorrow, but not consider potential rental income from a property you already own? I find this very odd. Any rental property that comes on the market is snapped up in two seconds around here.

Anyway, we had a call from a First Direct rep earlier today. It seems they don't like it when you tell them that you plan to pay off the loan almost immediately. However, in practice you can do just that - but don't tell them! She has confirmed that there are no early repayment penalties and no limits on how much you can put into your savings account each month. So a bit of contradiction there.

We've also learned that they will consider 75% of the value of our existing house as part of our repayment strategy, which is good news for us as we can use our regular earnings to finance the interest payments and the rest of the capital repayments. In this regard, it's better for us to take out a longer term mortgage - so we stand a better chance of being approved. In practical terms, however, this doesn't matter as we can still pay off the loan within the first year if we choose to do so. That's my understanding, anyway.

We might keep the house for a few years and finance the interest payments through the rental income, though I think my husband's quite keen to sell it as soon as possible to avoid the possibility of a house price crash and finding ourselves in negative equity.

If we do go ahead with this, I'll come back and update this thread for the benefit of others who might want to try this. First, however, we need to find our dream house - or in any case as close to it as we can get!

st3v31963

We originally mortgaged for 17 years (my nominal retirement date). As ours is interest only it made no difference to the monthly payments, but we wanted to give ourselves maximum flexibility.

In reality, the remaining balance will be fully offset by the end of 2015, but I'll keep the facility running for at least 2-3 years after that whilst we build up other emergency funds. At the moment those emergency funds are sitting in the offset alongside my OH's self employed income tax buffer, and an interest free credit card stooz pot. The whole lot is tracked by a spreadsheet updated whenever there's a transaction.

In the case of a repayment offset I'd go for the longest term possible, assuming no ERC, as this minimises the minimum monthly payments. As you say, there's no reason you can't just pay the whole thing off when you're ready, but this gives you some flexibility, and the bank will be happier with a longer term.

Interesting that First Direct will allow up to 75% of the value of one fully owned house to be used as collateral on another. That provides us with a potential way to buy a holiday/retirement place before we have all the funds fully available.

st3v31963

Sorry, forgot to answer the other part of the question....

We told Santander that we were going to repay the capital with overpayments financed from the rental income with a backstop of selling one or other of the properties if it was not all paid off by the end of the term. They seemed happy with that, but this was

- Pre-MMR, so rules/scrutiny may be tighter now.
- Via a broker, so potentially able to be more flexible on criteria

We did originally talk to First Direct, but they weren't being very helpful (I guess it depends on who you get on the phone!) Next time I'd possibly be a bit more economical with my exact plans.....

amnblog

This sounds like a good idea for you in theory, but it is not one to do without the advice of a broker, or you may well hit a snag down the line.

Have a broker check that what you intend is do-able and outline any 'curve balls' that you may not have considered.

susan963

st3v31963 wrote: »

In the case of a repayment offset I'd go for the longest term possible, assuming no ERC, as this minimises the minimum monthly payments. As you say, there's no reason you can't just pay the whole thing off when you're ready, but this gives you some flexibility, and the bank will be happier with a longer term.

All offset mortgages from First Direct are interest only, but they still want to see a capital repayment plan, therefore it is definitely better to take out the loan for a longer term, I agree.

susan963

amnblog wrote: »

This sounds like a good idea for you in theory, but it is not one to do without the advice of a broker, or you may well hit a snag down the line.

Have a broker check that what you intend is do-able and outline any 'curve balls' that you may not have considered.

Thanks, this is something we might look into, however, if at all possible, we would like to avoid any unnecessary expenses. How much do brokers generally charge?

amnblog

If you wish to avoid unnecessary expenses use a broker.

They charge anything from zero to 1% or more.

Expect to pay between £300 and £1000