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Interest Only - lender insists on switching rates

edited 14 June 2019 at 7:42PM in Mortgages & Endowments
18 replies 1.6K views
Mike48632Mike48632 Forumite
11 posts
edited 14 June 2019 at 7:42PM in Mortgages & Endowments
Hello
I have a repayment mortgage but I'd like to switch to interest only. I don't want to change anything else. I meet all the lender's criteria for interest only lending, including:
- minimum income
- minimum loan size
- max LTV for interest only
- minimum equity requirement if using sale of property as repayment vehicle
- affordability
My lender is happy with all the above, including sale of property as repayment vehicle. My LTV is only 30%, and equity is close to £500,000.
They say I cannot simply stop paying the capital, but I must pay off the existing mortgage and take out a new deal. But I'm happy with my current deal - I'm 4 years into a 10 year fixed rate, and I would have to pay about £8,000 in redemption penalties. It doesn't make any sense to me, and there is no explanation offered other than "those are the rules".
What can I do?
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Replies

  • Kentish_DaveKentish_Dave
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    Two choices, stick with the deal that you agreed with when you took it out or take out a new mortgage on the current terms.

    You seem to think that you can unilaterally change the contract that you entered into, why on Earth would the bank let you do this?
  • Mike48632Mike48632 Forumite
    11 posts
    It’s a good challenge Kentish Dave.
    I originally borrowed from this lender 19 years ago, capital and interest. 11 years ago, I phoned them up one day and I asked if I could go interest only. The answer was yes, no questions asked. They switched me to interest only immediately.
    6 years ago I sold the property and bought a bigger one, and increased the size of the mortgage. I kept the “tracker for life” rate on the original loan (they even extended the term of the “tracker for life” rate, from the 12 years remaining to 25 years) but they made me switch from interest only back to repayment (I assume my income at the time did not meet the minimum income requirement for interest only borrowing - but I didn't ask, I was glad to be offered over 5 times income). Presumably, when I had switched from repayment to interest only 5 years earlier, the lender had no minimum income requirement, as they had asked no questions.
    So, given the history with this lender, and the fact that I now meet all the interest only lending requirements (my income is bigger than it was 6 year ago), and in particular the low LTV of 30%, I was expecting to be able to move to interest only.
    Given the history, is it an unreasonable expectation?
  • Kentish_DaveKentish_Dave
    842 posts
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    Reasonable doesn’t really come into it. Banks don’t do custom products on the whole nowadays, mortgages are pretty low margin business, so they are standardised, piled high and sold cheap.

    There is probably not even a mechanism in place for them to come up with what would be a product that only you had.

    I understand that it’s frustrating, but it’s a bit like asking Tesco to sell you a non-standard tin of beans.
  • zx81zx81 Forumite
    28.9K posts
    Tenth Anniversary 10,000 Posts Photogenic Name Dropper
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    Mike48632 wrote: »
    Given the history, is it an unreasonable expectation?

    Yes.

    It's a change of product, so you will need to choose from what is available, either from your current lender or elsewhere.
  • amnblogamnblog Forumite
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    Sounds like Barclays.

    This approach does not surprise me.

    What is the objective of going interest only? Cash flow.

    Will they allow you to extend the term?
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • You're right amnblog, it is Barclays.

    And yes, cash flow is the reason, sort of, but not because I can't afford the current capital and interest payments (I can afford them easily), I just have very little cash and want to build up my cash reserves. I'm quite happy to have the c£200k outstanding at the end of the term.

    The current term finishes 4 months before my 70th birthday. I haven't asked whether they'll extend the term. Is it worth asking?
  • ThrugelmirThrugelmir Forumite
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    Mike48632 wrote: »
    They say I cannot simply stop paying the capital, but I must pay off the existing mortgage and take out a new deal. But I'm happy with my current deal - I'm 4 years into a 10 year fixed rate, and I would have to pay about £8,000 in redemption penalties. It doesn't make any sense to me, and there is no explanation offered other than "those are the rules".
    What can I do?

    Switch to an interest only product from the current range. As that appears to be their terms of business. As the customer you have no say in the matter.
    “Buy value, not market trends or the economic outlook. Individual stocks determine the market, not vica versa." - Sir John Templeton
  • stevenhp1987stevenhp1987 Forumite
    907 posts
    Part of the Furniture
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    You agreed to a ten year fix.

    Switching product or terms means you have to essentially buy out your current contract. This contract will state Early Repayment Charges are repayable if you finish it early.

    You either have to pay the Early Repayment Charge, or keep to your current deal. There is no alternative!

    Why did you get a 10 year fix if you knew it would finish just short of your 70th birthday? Did you expect to be working until 70?!
  • You agreed to a ten year fix.
    Why did you get a 10 year fix if you knew it would finish just short of your 70th birthday? Did you expect to be working until 70?!
    I'll be 56 when the 10 year fix finishes, but the term doesn't finish until I'm nearly 70 (25 years form age 44). Yes, I expect to work beyond age 65. I had my 3rd child when I was 48. They don't pay for themselves.
  • Kentish_DaveKentish_Dave
    842 posts
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    No, they don’t pay for themselves but it’s not the bank’s responsibility to waive the terms because you decided you wanted a bigger family.

    It sounds like some help with budgeting may be useful for you, why not post a statement of affairs to let people try to give you decent advice about where savings can be made?
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