Can I get an interest only mortgage and any tips when doing so

Beatle_Ray

Hello, I had started a thread in the house buying section but that conversation has moved on and so its best continued here. The background is that our property is valued at £400K and we owe £104K on it, there is no other debt aside from a few hundred pound on the overdraft but that's easily cleared and not a worry however for the past two years I have been self employed, not sure if i should have told the lender, Halifax, but up to now i have never missed a payment and just about keeping our heads above water but the business has taken a bit of a hit during to Covid, the business model is fine but given that we can't meet in groups of more than six, or at least we did until Saturday so for the short term future I am going to struggle to make the payments due to the lack of income, so my question is, how easy is it to move to interest only payments, looking at the statement this is approx £250 per month, the full payment is £927 a month, ideally i would prefer this for the term of the mortgage which is just over ten years to run, so should i go through a broker or call them direct and if i can them direct is there any do's and don'ts, a three month holiday payment wouldn't help as i feel as i will need help for at least 18 months, i'm aware of course the figure outstanding will remain but if i can make some overpayments if i'm interest only then i will do so, of course all help and guidance greatly appreciated as I need to resolve this in my mind to avoid any further sleepless nights,

Thanks 

enthusiasticsaver

It is not that easy to get interest only mortgages these days thankfully as they cause all sorts of problems when the term finishes especially if the borrower is close to 70 when most lenders tend to stop lending.  On a temporary basis due to your income reducing when I worked for Halifax they would have looked favourably at putting the mortgage on interest only for a limited period of time.  I suggest you ask for 6 months initially and see where you are in 6 months time.  

ACG

It can potentially be done, but it probably wont be the saving you expect and you may still struggle:
- Purely interest only can be done, but you will probably find rates are around 3 to 3.5%. (much higher than your sub 2% I am guessing). 
- The fact that you are having to do it for financial reasons rather than personal preference will be a problem. 
- Brokers insurance costs increase massively as soon as we mention we have done interest only cases, so you might find brokers reluctant to do them.

You can look at using the payment holiday, but that is just a short term fix. You might find you have a better chance of extending the term to say 20 years (assuming your ages and lenders criteria allow), that would lower the repayments but without the need for interest only. 

Failing that, you may need to look at downsizing, which could be better to do that on your terms rather than leaving it too late.

foxy-stoat

Just ask for a 3 month payment break, save the money and make an overpayment when/if you can in a few months.

whirlyhead

I've just taken out an interest only at 1.47% for 5 years but I too am self employed and I had to produce several years worth of company accounts.  So it is possible.

Beatle_Ray

Thanks for the replies, if i respond to the quote from ACG - why do brokers take out an insurance? The interest rate I have is currently fixed for two years at 2.4% i think, my guess is that this will mean a payment of approx £400 a month if IO based on the higher rate quoted here, I'm 58 so really only another ten years at work and i have just submitted first years accounts to my accountant, just a thought if i wasn't successful in getting 0% but took the payment holiday for three months then missed a payment and await for the arrears team at Halifax to contact me and see if they offer anything, would that be irresponsible and/or foolish?

enthusiasticsaver

I would imagine the insurance is to cover the broker against advising you wrongly which at 58 moving to an interest only mortgage might be considered unwise. When does the term finish? Can you just extend the term? 

Beatle_Ray

Thanks, it was a two year term taken out in April this year, that's for the current deal but the mortgage has just over ten years to run, why would the advise be unwise moving to IO, just curious to know, thanks

ACG

We have to have professional indemnity insurance. As soon as we mention interest only cases, the pool of insurers reduces which means increased costs. The reason for that is purely because Claims management companies (and customers) make complaints about them thinking it is free money (although I am sure there are some legitimate claims for miss selling). In reality it comes from our pocket and so do the increase costs associated with those types of mortgages. It is not financially viable to do them and with insurers refuses to insure those cases in some circumstances it can also be a little reckless as a broker to be doing them. 

But back to the point, the only way you are going to get your lender to show their hand on interest only is to go into arrears, the problem here however is that even if they agree to interest only, you will be showing as in arrears every month until you catch up and that could be 2 years plus from what you are saying. Imagine how that will affect things like getting a credit card, mobile phone, broadband, switching banks etc. Its not something I would personally advise. They are also going to want to know how you plan on clearing the balance at the end. It wont be the best decision you have ever made if you go down that route. 

But with one years accounts, I dont think you are going to find a lender who will actually offer you interest only anyway, so it is either going to be your suggestion or downsizing. 

Beatle_Ray

Thanks ACG, i have been debt free for about seven years now and pride myself on that so really don't want to end up with a load of grief in the areas you say, we did go to look at a property on Friday and it was not what we wanted and showed how little our money can buy where we are, the replies here are suggesting that take the mortgage holiday for three months and use that time to build up some funds hopefully and see where we are when that starts to expire, hopefully I will have enough to make the payments then but utilise the time to look at downsizing the property, if we do take the payment holiday when would be the best time to do that, my understanding is that it is available up to the current new lockdown ends on the 2nd December, is that correct?