Is interest only remortgage a good idea in my case? fixed or tracker?

user1168934

Here I am once again seeking help and guidence from the lovely people here - thanks in advance.

My current mortgage term on my miniscule flat is ending in a few months time. At the same time I am looking to buy a house with a deposit I have saved. The idea is to put the flat on rent and live in the house. At the moment the houses seem to be in extremely short supply so I have no idea if or when I will be able to buy to move - in the mean time I will be living in the flat.

I am thinking that for remortgage of the flat I should go for interest only. This will save me a bit more money for my deposit. In time, I will pay the capital with rent or savings as and when I can. Obviously, I don't have much experience doing these things. Does this sound like a good idea? It will be a residential mortgage for now but after I buy I will probably have to get a consent to let - do you think it will be a problem for interest only mortgage?

I want the initial term to be 2 years but I am undecided whether I should do fixed rate or tracker. Seeing as I don't want to sell it, may be I should go for fixed as it gives a good rate of 1.17% (vs 1.59% + base for tracker). Even if the base rate goes further down it will stop at 0% so fixed still seems like a good idea to me. What do you guys think?

dimbo61

Sorry won't happen.
Very few lenders will allow Interest only mortgages on residential properties.
Yes your long term plan is too rent out the flat but the Computer say NO

ACG

Interest only mortgages are very difficult to get on a residential property.
General requirements are:
£75k p.a income.
50% LTV.
Evidence of an ability to pay off the mortgage at the end of the term.

You do not necessarily need all of those things, but the less you have the higher the rates will be. I doubt you will be looking at rates below 3% in all honesty. 

As a broker, we do not even offer them anymore (except for Buy to lets, which yours would not be as you would need to move out when the new mortgage completes) as we can not get insurance for them, not at reasonable rates. 

user1168934

dimbo61 said:

Sorry won't happen.
Very few lenders will allow Interest only mortgages on residential properties.
Yes your long term plan is too rent out the flat but the Computer say NO

I checked on mortgage comparison sites and there were plenty including my current provider. So, why not?

user1168934

ACG said:

Interest only mortgages are very difficult to get on a residential property.
General requirements are:
£75k p.a income.
50% LTV.
Evidence of an ability to pay off the mortgage at the end of the term.

You do not necessarily need all of those things, but the less you have the higher the rates will be. I doubt you will be looking at rates below 3% in all honesty. 

As a broker, we do not even offer them anymore (except for Buy to lets, which yours would not be as you would need to move out when the new mortgage completes) as we can not get insurance for them, not at reasonable rates. 

Thank you, that's very helpful.

Should I go for tracker or fixed? Initial term 2 years. My equity is around 60%.

dimbo61

ACG has explained why the Interest only mortgage won't happen.
Yes you can get the cheap deals you want for a residential mortgage where your living in your tiny flat.
Would it make a good rental property ?
You would need Consent to Let from your lender if you decide to rent out the flat and buy a house.
Depending on the equity in the property you might get an Interest only BTL Mortgage if the figures stack up !
Are you allowed to rent out the flat ?
Will you have to pay a higher rate to your residential mortgage lender when you apply for Consent to Let.
Cladding ! Leasehold restrictions on subletting or Renting, 
So you need 25% equity and the rental income needs to be 135% of the mortgage cost or more.
You are starting a business so speak to a few experts, Letting agents, accountant, BTL mortgage brokers, read your lease, age, income, savings, pension, kids, Rightmove ( rental rates for one bed flats in your area )

K_S

user1168934 said:

dimbo61 said:

Sorry won't happen.
Very few lenders will allow Interest only mortgages on residential properties.
Yes your long term plan is too rent out the flat but the Computer say NO

I checked on mortgage comparison sites and there were plenty including my current provider. So, why not?

@user1168934 If you don't mind me asking, which comparison sites have you looked at for residential interest-only mortgage rates? The rates you have cited seem awfully low for an I/O resi mortgage, hence the question.

user1168934

K_S said:

user1168934 said:

dimbo61 said:

Sorry won't happen.
Very few lenders will allow Interest only mortgages on residential properties.
Yes your long term plan is too rent out the flat but the Computer say NO

I checked on mortgage comparison sites and there were plenty including my current provider. So, why not?

@user1168934 If you don't mind me asking, which comparison sites have you looked at for residential interest-only mortgage rates? The rates you have cited seem awfully low for an I/O resi mortgage, hence the question.

I believe it was moneysupermarket.

UPDATE: My previous rates were wrong - aplogies. I have just double checked on moneysupermarket and I can see the following rates for initial term 2 years:

Tracker: 1.16%, 999 product fees (The Cumberland)

Fixed: 1.09%, 999 product feed (Nationwide)

These are the cheapest by monthly payment - there are other options of course.