Refused a repayment mortgage by current interest only provider

lovelylouca

Hi

Looking to understand my options and get a bit of clarity.

I bought my house 6 years ago on an interest only mortgage. The plan at the time was to switch to repayment after 3 years. When the time came, I was on maternity leave and had just been made redundant so decided to ride the storm with an extra year of interest only.

I went back to my current provider, Halifax a year ago and applied for a repayment mortgage but was refused after the affordability check indicated that my debts would make it unaffordable (i.e. I wouldn't be able to find an extra £200 per month). I don't have a partner so am looking for sole mortgage application.

Currently I have £4,700 credit card debt on 0% interest and an estimated 75% LTV. It is likely that in the next few months I will be working increased hours also (working full time rather than 4 days per week).

What are my options? Ideally, I'd like to start repaying the mortgage as soon as possible at the same time as reducing my credit card balance.

How is it that a mortgage supplier is not able to grant me a repayment mortgage on the property? It is surely more responsible lending for them to acknowledge that I need to reduce my mortgage? (I realise how naive that sounds!)

I'd really welcome your thoughts.

Thrugelmir

Make overpayments as when you able to reduce the balance owed on the mortgage account.

Responsible lending puts the onus on the lender to ensure that it's affordable. If in doubt they'll decline an application. As it's they that carry the risk of a fine from the regulators.

lovelylouca

Thanks Thrugelmir

How can I make overpayments on an Interest only mortgage?

tlc678910

You should be able to make overpayments but you need to read your mortgage information or contact your lender for terms and conditions there may be a minimum repayment amount of £1000 for each transaction for example. Ask your lender how you can overpay too e.g. Bank transfer, online mortgage account or in a branch. It will depend what your lender offers.
Tlc

warmsnow

Unfortunately lovelylouca you are going to have to speak to Halifax about repayments.

For me, I made transfers into the mortgage account, just like a bank transfer. At the beginning there are typically limits on repayments, but that would surprise me if that was still the case after six years. If you aren't allowed to make any repayments at all then you will just have to save, but I doubt that will be the case.

(1) call up the bank and find out how to make repayments
(2) pay back what you can on the mortgage. Don't overdo it, always keep some flexibility
(3) repay the credit card debt when the 0% period ends - only do it before then if you think you will miss that date

You were lucky that you were on an interest only mortgage, and you're lucky that the extra hours should hopefully get you on track for paying it back. When you get those hours, check if you can get a nice remortgage deal. Clearly a repayment mortgage is the best way to pay off a mortgage, but don't forget the flexibility the interest only gave you when you had to ride out your redundancy.

chappers

yeah absolutely, you never know you might be glad of that flexibility again in the future an interest only residential mortgage is a rare thing nowadays.
If you believe you can survive with £200 a month less each month then contact your lender about making overpayments, the main thing you will need to find out is how much you are allowed to pay and how often, for example you may be restricted to only 10% of the balance, each year and maybe even only a single payment per year.
I would be surprised if a Halifax mortgage didn't have some facility for over payment.
Of course reducing your mortgage balance will also have the effect of reducing your monthly interest payments so win win all round.

Prothet_of_Doom

lovelylouca wrote: »

Thanks Thrugelmir

How can I make overpayments on an Interest only mortgage?

You phone or write to them and ask them to increase your direct debit payment by the amount you want to pay each month.

It's probably written in the small print on the terms and conditions.

I'm just taking out an interest only mortgage on a BTL investment, on a fixed rate, and we can overpay by up to 10% of the balance in any single year.

amnblog

Check your mortgage offer document which will contain text like this is section 11. In effect, this means you can overpay within limits. These overpayments will have the same result as having a repayment mortgage.

You are able to make lump sum or regular overpayments to this mortgage at any time.

For details of any early repayment charges that may apply please refer to Section 10.

Currently, as a concession during the period when an early repayment charge applies, you can make overpayments up to 10% of the outstanding balance each calendar year (using the balance as at 1 January of the year in question or, in the year in which you take out your mortgage, the original balance) and the charge will be waived.

We reserve the right to change or withdraw this concession.

Where your mortgage is shown on systems as being divided into more than one sub-account (for example, where parts of the mortgage are on different products), then the waiver will apply to the balance on each sub-account separately. For more detail on when the mortgage will be
divided into sub-accounts please see the booklet 'Information about your mortgage' which is issued with mortgage offers.

If the sum of your overpayments exceeds 10% (but you do not repay the sub-account in full), the early repayment charge applies only to the amount you overpay above 10%. If the subaccount is repaid in full, the full early repayment charge is payable.

Where you make overpayments of 10% or less but then repay the balance in full within six months, the early repayment charge will become payable in full, including the portion which was waived
previously.

Our daily interest method will apply and the interest charged takes account of any changes in the mortgage balance from day to day. Any payment you make will reduce the balance and therefore the amount of interest you are charged, from the day that we receive it.

Playing_with_Fire_2

Apart from the discipline needed and flexibility, saving at a higher (after tax) rate than the mortgage, making overpayments, or having a repayment mortgage all have a similar impact.

You don't need the bank's permission to save the £200/month in a high interest account to eventually repay the mortgage. I would suggest you do this now. If you won't get the credit cards paid off before the 0% rate ends and don't know if you'll be able to transfer them, you'll probably be better off saving in a savings account, and then use the money if necessary to pay of the credit cards (which will probably be at much higher interest than the mortgage).

The first thing is to put the money away (and any extra from the fifth working day), then work out where you will get the most benefit from interest.

foxy-stoat

Drop £200 a month into Premium Bonds and watch it build up. You can either make a lump sum payment after a year to the mortgage or use it to reduce your credit card debt when the 0% deal runs out.

Playing_with_Fire_2

foxy-stoat wrote: »

Drop £200 a month into Premium Bonds and watch it build up.

Or a savings account