Interest-only mortgage possibility?

tomb89_2

Hi,

I have a 300K deposit (from inheritance) and currently earn 30K a year. The house that I wish to purchase is 500K and so I need to borrow £200K. I can afford the repayments on a 200K mortgage however it is more than the bank is willing to lend me. The obvious solution is to just find a cheaper house, however this is the house that I grew up in and it has always been a dream of mine to buy it.

I was therefore considering whether I could get an interest only mortgage for a couple of years until my salary increases (I am on a training scheme and should get a significant jump in 2 years). However all of the interest only mortgages that I have seen require a salary of at least £50k.

If anyone has any suggesting as to how I could make this work then they would be much appreciated.

shortchanged_2

No go I'm afraid. That is over 6.5 times income mortgage.

tomb89_2

Okay thanks. I was hoping they would base it on the affordability of the repayments

tomb89_2

My mother also offered to act as a guarantor - her house is worth £1 million and is mortgage free, however it doesn't seem like guarantor mortgages are offered any more?

Thrugelmir

tomb89 wrote: »

Okay thanks. I was hoping they would base it on the affordability of the repayments

What level of interest rates are you basing that assertion on?

tomb89_2

The best that moneysupermarket came up with for a fixed 2/3 year period was a rate of 1.99%, giving me monthly payments of around £330.

Jon_B_2

But the interest rate won't be that forever? What if your salary doesn't increase much?

You have no chance of making this work, so give up while you are ahead.

ViolaLass

tomb89 wrote: »

The best that moneysupermarket came up with for a fixed 2/3 year period was a rate of 1.99%, giving me monthly payments of around £330.

The banks would stress test it much higher. How would 7% leave you?

tomb89_2

Thanks everybody. I must have a flawed understanding of mortgages! I was hoping that I could just get an interest only for 2 years and then change to a capital & interest when I finish my training scheme (I am guaranteed a 45k salary) but clearly it's not that simple.

Malmo

tomb89 wrote: »

Thanks everybody. I must have a flawed understanding of mortgages! I was hoping that I could just get an interest only for 2 years and then change to a capital & interest when I finish my training scheme (I am guaranteed a 45k salary) but clearly it's not that simple.

Mortgages are based on affordability but the upper loan to income ratio is capped as dictated by regulatory requirements to help prevent lenders over extending themselves. I'm sure you're aware of the other significant costs of running a household alongside a mortgage, in addition to the scenario of rising interest rates (hence the stress testing at 7%).

Also with Interest Only mortgages, there must be a credible repayment vehicle in place to pay off the capital at the end of the term.

The realistic option is to buy a cheaper property, though I'm guessing from the values you've mentioned that we're talking about London here, which is a world apart from everywhere else.

amnblog

Even if you take a mortgage interest only, the lender will base the affordability calculation on full capital repayment.