Chances of getting an IO mortgage as S/Employed with 40% deposit?

SavingisFun

Hi all

I'm looking to move away from employed role to a self-employed position where my earnings will vary significantly, I may not earn very much in the first twelve months.

I'm also a first time buyer and would look to buy a house in the region of 200k; with a deposit of 80k. My preference is to put the balance on Interest Only. I have not found a house to buy yet, but would like to buy when the right one comes up.

Will I have difficulty getting a mortgage in these circumstances? Surely there is little risk to a lender when a 40% deposit is put down?

glosoli

It is relatively difficult to obtain an interest only mortgage now on a residential property. In any case, the affordability would still be based on as though the mortgage was Capital and Interest, so it wouldn't make it any easier from an affordability point of view to obtain the mortgage. What would your repayment strategy be?

SavingisFun

Repayment strategy would be stocks and shares ISA.

Thrugelmir

SavingisFun wrote: »

Surely there is little risk to a lender when a 40% deposit is put down?

That's not the issue you face. Affordability along with a sustainable repayment plan are the factors that a lender will be interested in.

Repayment strategy would be stocks and shares ISA.

How much do you already have invested? If zero, then it's pure speculation as to whether this route will work. Endowment mortgages failed due to investment returns mot hitting target.

That's why virtually all new mortgages are taken out on a repayment basis.

amnblog

Forget this idea, expect to buy using a capital repayment mortgage.

ACG

Getting an interest only Mortgage can be done, however it can not be done because you can not afford a repayment Mortgage.

Basically, the mortgage will be underwritten in a very similar way to a repayment mortgage, albeit they will want to see what your repayment strategy will be in addition. You will need to pass the same affordability rules and so on.

The bit that really kills this however, is that you will be newly self employed by the sounds of it and a low income.

You say there is no risk to a lender as there is 40% equity however:
1) Banks do not want to repossess properties. It costs time and money to repossess. Legal processes, court costs, estate agent/auction fees, administration etc etc.
2) Reputation damage - you can picture it now, you stood there arms crossed with a sad compensation face in the local paper writing scathing reviews on any website (potentially including this one). This is a bigger issue if in 25 years when your a pensioner and they are kicking a pensioner out of their home for 25 years for not paying down the 60% mortgage...there are many posts on here about people moaning about getting 25 years down the line and having a mortgage balance outstanding.
3) The FCA walking in, picking up your file and asking why they lent money to someone who had no means of repayment, limited proof of income from someone who themselves is unsure what they will earn.

Spangled

First Direct offset mortgages are essentially interest-only. But they come with stringent lending criteria and you may pay a premium on the rate for the offset facility.

kingstreet

SavingisFun wrote: »

I'm looking to move away from employed role to a self-employed position where my earnings will vary significantly, I may not earn very much in the first twelve months.

So when do you envisage enacting this plan?

SavingisFun

kingstreet wrote: »

So when do you envisage enacting this plan?

In the next month or two