Interest only mortgages - can someone explain something

woolythoughts

Hi

not for us as we've just bought a house on a repayment mortgage however there is something I cannot understand bout the current scarcity of interest only mortgages. Scenario (using nice easy figures for illustration):

House price 200,000
Deposit 30,000

LTV = 15%

Mortgage required = 170,000

Now, if a person wanted 70,000 on repayment and 100,000 on interest only that seems impossible unless your pension lump sum is 250,000.

However, if the following facts are:

1. Retirement lump sump guaranteed at 110,000
2. Income in retirement in addition is 20,000 index linked

WHY are they not allowed to offer 100,000 as interest only as it is quite clear that the repayment vehicle is there. And the income in retirement is more than sufficient.

Before you say its not guaranteed - railway final salary pension scheme for someone who has been in the railways as a driver 40 years already and will have at least 50 if not 55 years by the time he retires. If they tried to change the scheme for long term members like that, I suspect anyone who commutes to work by train will have many many days of having to walk as there will be no train drivers driving.

So yes, guaranteed.

I understand about risk etc but I don't see why, if you know the repayment vehicle is enough to clear interest only (and in this case is more guaranteed than someone with predicted investments) the position is extremely difficult to get.

AP73

if a lender says they only lend to people with blue eyes, then they will only lend to people with blue eyes.
it might not make any sense to you or I but I gave up arguing with lenders criteria years ago.
The answer is they don't want to do interest only no matter how safe it may seem. generally its not safe, I accept the outline you've given is the exception to the rule but criteria is criteria.

betmunch

What makes you think it needs to be linked to your pension pot? And that the pot needs to give a lump sum of £250k?
Other repayment vehicles could be:
Sale of BTLs
Downsizing
Saving and investments
Inheritance

However, as AP73 says. Lenders dont have to lend to you if they dont want to, they set their criteria as they see fit.

As a whole, Interest Only mortgage holders historically havent taken enough responsibility for paying off their mortgage at the end of term. The lenders go on global behaviour not individuals when setting criteria. They dont know you will be the exception to the rule, and they wont until its too late so they just put the criteria in place to minimise their risk.

Many lenders have made the decision not to offer Interest Only at all!

Dave_Ham

The old "my mate wants" gag

It's not for me, just wondering then emotionally charged defence of why it would work...

Thoughts and loci rarely come into play, lenders criteria very rarely bends. Additionally they are all anxious of interest only repercussions in years to come

woolythoughts

Dave_Ham wrote: »

The old "my mate wants" gag

It's not for me, just wondering then emotionally charged defence of why it would work...

Thoughts and loci rarely come into play, lenders criteria very rarely bends. Additionally they are all anxious of interest only repercussions in years to come

Well actually, it was what we were looking at originally but as I said, we're happy sorted now. I was just wondering why something that seems so logical makes lenders scared when they will arguably accept more risky vehicles.

Thrugelmir

woolythoughts wrote: »

I understand about risk etc but I don't see why, if you know the repayment vehicle is enough to clear interest only (and in this case is more guaranteed than someone with predicted investments) the position is extremely difficult to get.

How many railway drivers are are there, that apply for interest only mortgages?

Lenders are driven by markets top down not by individuals bottom up.

Somewhere out there they'll be a lender servicing a niche market.

lonestarfan

Your LTV isn't 15% it's 85%.
That's quite a high LTV for Interest only and that's a higher risk.
If you can get interest only at all it would be something like 50% LTV.
Santander do 50% LTV. Not sure if that's for new borrowers though or just existing ones.

Joe_Bloggs

@Thrugelmir

Lenders are driven by markets top down not by individuals bottom up.

In the past lenders/savings/institutions came from the population that they served. This could be considered nineteenth century crowd funding. For instance the still going Stafford Railway Building Society.

J_B.

Thrugelmir

Joe_Bloggs wrote: »

@Thrugelmir


In the past lenders/savings/institutions came from the population that they served. This could be considered nineteenth century crowd funding. For instance the still going Stafford Railway Building Society.

J_B.

Lenders still set the terms of qualification for a mortgage back then and what they offered. Building Societies required 2 years of saving with them. Lending multiples of 2.5 times. Repayment was the only option. 75%/80% maximum advance. 25 year maximum term.

Today's market although similar is somewhat different.

kingstreet

Joe_Bloggs wrote: »

For instance the still going Stafford Railway Building Society

I've just been into town to pay into our four* savings accounts, but had to get there before 12pm, as that's still closing time on a Saturday.

*Our two ISAs, our daughter's ISA and instant access account.



One of my neighbours is a non-exec on the board of the Railway.