FTB and interest only, is it possible?

bonjan

We are first time buyers with a 25% deposit on a £425k property.
We can comfortably afford the monthly payments of a repayment mortgage (we have an offer with Halifax already) but we are considering asking our broker about an interest only deal since we think that we would be better off investing the money in a cheap passive world equity tracker (in stocks and shares ISAs) than returning this money to the lender to reduce the balance, given the low rate times we live in.

Our combined annual income is £74.5k which rules out lenders that require higher annual incomes for interest only deals (e.g. HSBC, Barclays and Natwest require 100k).
Since we want to have the largest deposit possible we have already liquidated our S&S ISAs and cash is already sitting in monthly Ratesetter loans.

Which lenders should we look at for interest only deals given our income and situation?
We think that we meet the requirements of Halifax, TSB, Santander, First Direct and Leeds but we are not sure.

Besides a monthly investment in S&S ISAs that covers for the lack of capital repayments, what additional repayment requirements can we expect? Can we have the S&S ISAs with any UK broker? Do we need to have a certain balance in the ISAs to begin with? (we don't as per above).

Does it make sense to bring this up with the broker or are we being naive and we shouldn’t bother?

Disclaimer: we are aware that an interest only mortgage is a secured loan that has to be repaid in full at the end of the term and that we must save enough via the ISAs to be able to do so and prove it to the lender on a regular basis.

Contemptuous

So do you already have enough money sitting in the S&S ISAs to cover more than the mortgage amount you've requested?
If not, then you won't meet TSB's interest only criteria. I imagine it could be the same for Halifax as well. Can't comment on the others.
TSB will consider 80% of the current balance in the S&S ISA for interest only purposes. They don't consider future savings, only what can be proven now.

amnblog

Interest only deals for residential mortgage are now only available from selected lenders on such particular terms that I suspect you will draw a blank on this one.

Hurdles include:

Minimum income levels
Sufficient equity total
Sufficient equity percentage
Future Repayment methods
Current investment levels

You can ask, but if your broker says no, don't assume he/she is wrong.

bonjan

Contemptuous wrote: »

So do you already have enough money sitting in the S&S ISAs to cover more than the mortgage amount you've requested?

No, we have the 25% deposit only.
Our intention was to resume monthly investments in the now empty ISAs.

Contemptuous wrote: »

They don't consider future savings, only what can be proven now.

Is that the case for all lenders?

System

Go repayment and consider it a bond investment, moderate your equities

System

Or if you can afford it why not go for higher LTV and invest some of it?

bonjan

(Thanks Matthew, I concur with your first advice.)
Sorry I misread your update, I understood you meant not going 100% equities but blending bonds in.
Regarding your second advice, a LTV higher than 75% kills most of the interest only options still available to us, and we don't have that many to begin with since many lenders limit this to incomes above £100k.

I've just been on the phone with First Direct and they don't expect any balances in the repayment vehicle (ISAs) at the time of completion, so we already have at least one option.
The downside is that our broker only works with lenders that pay him a commission, so we are wondering if any other lender that works with intermediaries would take us.

System

Repayment wouldn't be so bad at 10% LTV in a way, as then the fact you have more upfront to invest can offset the fact you'd be on repayment. Its just that the entire loan will get more expensive so it depends what you're expecting to yield. I do global small caps @ about 15% a year, and do it through a sipp for the tax advantages

System

* meant 90% LTV

And I suppose a sipp could be a repayment vehicle, just less liquid, and maybe therefore less attractive to a lender

bonjan

Thanks Matthew.
We did consider a higher LTV but interest only and 90% LTV does not seem to be an option available to us. None of the lenders willing to do interest only with less than £100k annual income seem to go beyond 75% LTV, and some do even less (e.g. Leeds do 50% interest only and repayment on the remaining 25%).

We already found a direct option (First Direct) that works for us so we'll wait for feedback from the broker and then we'll compare and decide.