'Strange' advice from Mortgage Advisor re Interest Only Mortgages

Yellabowley

Morning all,

Just after some quick advice. We are looking to buy the house that we currently live in as we're paying the same in rent as the mortgage repayments would be and the landlord is willing to sell for a good price.

It was our plan to go interest only for the first three years and use every penny we have to invest in the property (it needs some work doing and we plan to extend) as much as possible so that at the end of the 3 years the value will have gone up at which point we'll remortgage and switch to capital and repayment but based on a lower loan to value and therefore better rates.

It's worth £140k and we have £21k (15%) deposit.

I have some adverse credit history from 2011 so decided to go through a mortgage advisor at work. The advice we got, however, seemed to be a bit strange. The mortgage advisor said that there's absolutely no chance of getting an interest only mortgage based on an 85% LTV and said that maybe if we had something like a 50% deposit on a higher value property (he quoted the figure of around £300k) then we would have a chance of being able to go interest only. After trawling the price comparison sites I have seen that there are a load of 'interest only' products out there at 85%. I'm wondering if there is a reason he would say this? Would the level of commission he would receive for referring us be less on an interest only? Or do you think that we would find out on actually applying that he is correct?

Any advice appreciated please.

Contemptuous

What did you propose to use to repay the interest only mortgage? A remortgage isn't a suitable repayment vehicle.

Yellabowley

If you mean at the end of the term, the lump sum from my pension will cover the purchase price very comfortably.

Not that we'd ever look to stay interest only for the whole term in reality.

kingstreet

I can't think of a lender which will accept employer pension scheme membership as the repayment vehicle for an interest-only mortgage without a number of caveats and IO with no repayment vehicle certainly isn't available at that LTV.

The advisor is correct.

For example, Halifax IO criteria;-

http://www.halifax-intermediaries.co.uk/criteria/mortgage/default.aspx?filter=I

Pension UK

For the purposes of backing an interest only mortgage, a maximum of 25% of the current fund value with the current value to be greater than £1 million. Where customers are on a final salary pension scheme the lump sum can be used if the current value is greater than £250,000. Pensions can be combined to reach the £250,000 and there is no need for confirmation of the full fund value.

And no, commission is based on loan amount and has nothing to do with repayment method.

getmore4less

Yellabowley wrote: »

After trawling the price comparison sites I have seen that there are a load of 'interest only' products out there at 85%.

Does not mean they will be available to you.

try checking on one of the sites that shows in the comparison what the criteria will be.

Elliecat

We are currently selling our house to emigrate to America and it is taking longer than we had thought/hoped. We are 7 years off the end of our mortgage and I have sold my business and retired so we can no longer afford the full mortgage. However we have been paying interest only since last July and the BS are now refusing to extend that offer. I am currently taking this up with the Financial Ombudsman and further discussions with the BS. Any further advice would be gratefully received. We are more than happy to pay interest only and have over £240K equity in the property so repayment when sold is not an issue.

Yellabowley

Cheers. The mortgage advisor said that the repayment wasn't the issue as my pension lump sum at current value is enough to cover the repayment and there's 28 years worth of inflation to take into account on top of that. I appreciate the link from Halifax suggests otherwise though.

In relation to the comparison websites I know they are for comparison only and was mainly concerned about applying for any of the ones that came up due to what the mortgage advisor said. I don't want any rejections on my credit file.

My other main concern was whether there were greater incentives for the advisor as his advice that no-one would do IO at 85% LTV appeared to conflict with the products showing as being available on the comparison sites. Thanks for clarifying that one as well.

He has suggested the best way to get a lower monthly payment is to use a firm that will allow mortgages to 70 years of age as my lump sum will pay the remainder when I get it at 60. We could also reduce the term when we come to remortgage if we wish.

Thanks again so far anyway.

amnblog

You have seen the value of the figures on the comparison sites.


Your mortgage adviser has advised you correctly but you seem not to trust his advice.


If you have no confidence in your adviser you should seek another one. This mortgage is definitely not going to happen without input from an adviser.

Yellabowley

It's not that I don't trust his advice per se. It just seemed to conflict with what I had found on the comparison sites.

My main issue was that there could have been some ulterior motive in him advising a repayment product. If that's not the case then I'm happy to let him do his work.

amnblog

Yellabowley wrote: »

It's not that I don't trust his advice per se. It just seemed to conflict with what I had found on the comparison sites.

My main issue was that there could have been some ulterior motive in him advising a repayment product. If that's not the case then I'm happy to let him do his work.

The rest of the paragraph does not fit with the first eight words.

maninthestreet

Elliecat wrote: »

We are currently selling our house to emigrate to America and it is taking longer than we had thought/hoped. We are 7 years off the end of our mortgage and I have sold my business and retired so we can no longer afford the full mortgage. However we have been paying interest only since last July and the BS are now refusing to extend that offer. I am currently taking this up with the Financial Ombudsman and further discussions with the BS. Any further advice would be gratefully received. We are more than happy to pay interest only and have over £240K equity in the property so repayment when sold is not an issue.

Probably better to start a new thread for thris, rather than try to hijack someone else's thread.