Looking to remortgage — advice sought

[Deleted User]

Interest only on a residential property isnt a 'terrible idea'. Advice needs to be tailored to each individual and its impossible to tar everyone with the same advice. I have only done 2 of them in the last year but can 100% say it was good advice for the clients to go down that route.

The reason most will say its not the way forward is because your main residence is the place where you should be financially secure and an interest only mortgage doesnt offer this as it doesnt pay off the debt each month.

It can be an option for some depending on what you plan to do when the debt comes due to be repaid.
Something to bear in mind is that if increasing term isnt an option, by going interest only for a short period of time you just ensure that your payments when you come back to repayment will be higher than they are currently (shorter time to repay the same debt).

You could look at extending the term of a repayment mortgage. Some lenders will allow you to use your employed income up to the age of 80 or your retirement age whichever is sooner. This would mean you could reduce your payments and still ensure you are financially secure in your main home.

If you wanted to go interest only there will probably be lenders that support it based on your income levels and loan to value. It hugely depends on what your plans are for repayment in the future.

If its a case of freeing up cashflow and returning to repayment later they will probably say no
If you have large pensions or investments they may say yes
If you legitimately plan to sell your property and use the equity to downsize when you get older then they may say yes.

You have done the right thing in asking questions as the people with problem interest only mortgages didnt do this. They ended up being 70 years old and trying to repay hundreds of thousands of pounds somehow.


To try answer your questions you asked:

1. No one will give you advice on what to do as you are not our clients. It depends on a full fact find and a full discussion around your future plans

2. The mortgages are usually offered exactly the same as repayment ones but just with an interest only payment. So same rates, types, product terms etc (there will be a couple who do different but usually the same)

3. See Number 1

4. If you are on a combined income of £200k you are obviously not daft. You shouldn't need convinced of the benefit of employing someone who specialises in this to take you through the process. Get a recommendation for a broker from a family member or a friend. Or even on a facebook group or something. Outline what you want to do and talk it through

bpk101

Deleted_User wrote: »

Something to bear in mind is that if increasing term isnt an option, by going interest only for a short period of time you just ensure that your payments when you come back to repayment will be higher than they are currently (shorter time to repay the same debt).

Good point thanks.

Although we're currently paying a very high interest rate due to us borrowing a 90% mortgage when we purchased the house. Would this rate not come down considerably if we switch back to a repayment plan after a 3 year IO plan given the increased value of the house now we've renovated?

Deleted_User wrote: »

You shouldn't need convinced of the benefit of employing someone who specialises in this to take you through the process. Get a recommendation for a broker...

We are actually talking with John Charcoal (who we used when we bought the house) and Alexander Hall, but as my OH only instructed them to look into options for interest free mortgages that's all they're currently doing, we haven't had a face to face discussion with them and therefore haven't received any particular advice for or against switching to an interest free mortgage.

Do John Charcoal / Alexander Hall offer impartial mortgage advice on what type of mortgage would suit somebody's financial position, or do they just broker the deals?

getmore4less

bpk101 wrote: »

Paying off 4 years of home renovation loans mainly + the daily cost of living in London is not cheap.

Also my OH is about to go on a years maternity leave at a reduced wage with the view to going back part time for 6 months after (she is the higher earner) which is why we're looking to reduce our mortgage costs for some years.

That can account for the spends and the need to reduce due to reduced income.
(London does not have to be that much more expensive than other places after housing which is mostly mortgage)

How much outstanding debt on top of the mortgage?
Any left that will need managing as well.

Depending on income profile there is probably a clear case to max out the pensions and reduce capital payments on the mortgage(longer term/interest only) and use that as a repayment vehicle in the future.


Get the maternity period right and you could benefit from optimised lower income across at least a couple of tax years.
(Sound like it is too late to plan that properly)

[Deleted User]

bpk101 wrote: »

Do John Charcoal / Alexander Hall offer impartial mortgage advice on what type of mortgage would suit somebody's financial position, or do they just broker the deals?

You should be getting advice on the best type of mortgage for your circumstances and going through the positives and negatives of both repayment and interest only. And then the product term. And then the overall term.
If they are only looking at interest only deals it sounds like they are order taking from you which is a poor imitation of a proper advised service.

We are Mortgage Brokers but more importantly Mortgage Advisers. Looking at the comments getmore4less has left on just above here indicates the level of detail you should be going in to and questioned on before someone signs you up for a high risk mortgage transaction (residential interest only are generally classed as higher risk).
I dont know if getmore4less is a mortgage broker or IFA or something but if your current broker is not asking these kind of questions you have to wonder why as it sounds like you are not getting a fully advised service.

If you are happy with the relationship you have with your broker then I would arrange a face to face meeting or a full telephone fact find and go through all these points.

Interest only is not a bad evil thing that its made out to me. Its just another way to structure your mortgage and as long as you have a plan to repay then its just as valid as a capital repayment loan

SouthLondonUser

Have you considered part-and-part mortgages? Barclays and Santander offer them, although AFAIK only through brokers(e.g. Trinity Financial, but also others). There are other criteria, but the key thing is that the LTV on the interest-only part cannot be > 50%. E.g. if the property is worth £800k, no more than £400k can be interest-only, and the rest must be on a repayment basis. Crucially, both banks allow ‘sale of the property’ as a repayment strategy.

It would be stupid to generalise financial advice as individual circumstances vary so much from person to person. But it would also be stupid to forget that interest-only mortgages were abused in the past, and were often sold to people who didn’t really understand that they were not repaying the capital, and what that meant. Lots of people just saw the lower monthly payment each month and thought “oh, how great!” without realising they’d still have to pay back the capital one way or another – just look at all the threads of people who think they had been ‘missold’ interest-only mortgages years ago.

My two cents is that interest-only, whether in full or in part, can be a good idea, but typically in situations which would not apply to the majority of the population, e.g.:
you want to free up as much cashflow as possible because you (think you) can invest elsewhere at better rates than the cost of the mortgage; of course this has the risk of biting you in the *** if the returns are lower than anticipated, let alone negative;
you are facing a TEMPORARY cashflow issue (lower income and/or higher expenses); the keyword here is TEMPORARY;
you know you will not be in this house forever, e.g. you will downsize and/or move somewhere cheaper in 5-10 years, e.g. you are buying a 4-bed house in London but know you’ll move to a 2-bed flat in Manchester when you retire / when the kids leave the house / etc.


Also, I don’t want to jinx you, but… how secure are your jobs? You are both on very high incomes. There are certain professions (e.g. medical doctors) which can pay this kind of money and are very secure and stable; others (e.g. anything to do with finance or industry/general management) where income may actually decrease after a certain age, because people become too expensive and companies replace older workers with younger, cheaper blood. To the extent possible, this is something to bear in mind when budgeting.

[Deleted User]

Pretty sure all lenders mainstream lenders that do part and part accept the applications from all brokers who are registered with them. I can certainly do them no questions as part of openwork

Another very good option though. Giving further strength to my thought that the current broker is order taking at the moment

SouthLondonUser

getmore4less wrote: »

Depending on income profile there is probably a clear case to max out the pensions and reduce capital payments on the mortgage(longer term/interest only) and use that as a repayment vehicle in the future.

Depending on circumstances, this can actually be great advice. But of course this requires a thorough assessment of your entire situation: job stability, outgoings, tax situation, other investments and debts, etc

Of course do bear in mind that, unlike with (most) other investments, the money you put into a pension is inaccessible before pension age, so you should not max out your pension allowance unless you have a nest egg of savings for a rainy day. E.g. don't put so much into your pension that you'd then struggle if you lose your job or have some unexpected expenses (e.g. the car breaks down).

SouthLondonUser

Deleted_User wrote: »

Pretty sure all lenders mainstream lenders that do part and part

Last time I checked this wasn't always the case.
For example, AFAIK HSBC and First Direct don't offer part and part. I remember calling Lloyds and Natwest to ask, but the person on the phone clearly had no idea what I was talking about.

These things change all the time, so I'll check again next time I need it.

[Deleted User]

SouthLondonUser wrote: »

Last time I checked this wasn't always the case.
For example, AFAIK HSBC and First Direct don't offer part and part. I remember calling Lloyds and Natwest to ask, but the person on the phone clearly had no idea what I was talking about.

These things change all the time, so I'll check again next time I need it.

I just meant that of all the ones that offer it I'm pretty sure they accept applications from all authorised brokers.

SouthLondonUser

I see, sorry for the misunderstanding