Interest only mortgage

raygoodlett

Hi all,

I am currently on an repayment mortgage paying just over £1500 a month, the fixed term is due end at the end of June 2022. I've tried to get an interest only mortgage (via my broker) and have been told that there are no products available that meet our criteria.

My wife and I are retired from our main jobs and intend to refurbish our London home and downsize out of the area. We are both drawing a pension (by default), my wife has a flexi-pension and mine is fixed, and we are still working, my wife on zero hours contract and I'm self employed. We have only retired since last August 2021 and therefore we don't have a years worth of accounts to take into consideration for the affordability. 

The house is currently £600k and we have a £230k mortgage left, and like I said, the intention is to downsize. We have over £60k in savings and both credit scores are at the highest they can be. However, when the 4.5 x the available income is worked out, we can only raise £150k leaving us £80k short of the outstanding mortgage.

Are there any other options available to us..? I find it difficult to comprehend where the risk is..! The downsizing of our present home is our 'payment vehicle' and the fact that there is good equity in the house surely mitigates risk as well. The interest only mortgage will clearly present a lower monthly mortgage payment than the £1500 we're paying, thus masking this more affordable. 

Any help would be appreciate. 

Kind regards, 

RG  

[Deleted User]

if you cant afford a conventional mortgage (based on lenders/regulators assessment) then look at equity release.  Rates arent half bad and you can still pay the interest to treat as a normal interest only mortgage and protect your equity.    

Snookie12cat

When I was recently looking for an Intertest only mortgage I looked through about 40 lenders criteria and I found 4 who accept downsizing as an acceptable repayment strategy and also did not have a minimum income. Some require at least £200k equity in the property and other criteria, so they may not work for you, but maybe worth you looking into them.
I think the risk with downsizing is your house not being worth enough to purchase another house when the time comes.

Yorkshire building Society
Principality Building Society,
Hinkley & Rugby
Leek United (only via intermediary though). 

Honestly though if at 4.5x your income you cant make the mortgage amount, no one will touch you. Some lenders do 5x but I do not think any of these Interest Only ones do. 

[Deleted User]

I can find 33 lenders on my list who take downsizing as a repayment strategy and have no minimum income requirements.  Some caveats in there obviously on plausbility and min equity but there are plenty lenders who do it. 

There are a few that assess interest only loans using the interest only payment but most will stress it as a capital mortgage so short term can kill affordability.   You will still ultimately need 4.5-5x income though which you dont have so no new lender will take it on under a conventional mortgage

Snookie12cat

Deleted_User said:

I can find 33 lenders on my list who take downsizing as a repayment strategy and have no minimum income requirements.  Some caveats in there obviously on plausbility and min equity but there are plenty lenders who do it. 

There are a few that assess interest only loans using the interest only payment but most will stress it as a capital mortgage so short term can kill affordability.   You will still ultimately need 4.5-5x income though which you dont have so no new lender will take it on under a conventional mortgage

I suppose I should have said found 4 that were suitable to me for various reasons.

MWT

raygoodlett said:

Are there any other options available to us..? I find it difficult to comprehend where the risk is..! The downsizing of our present home is our 'payment vehicle' and the fact that there is good equity in the house surely mitigates risk as well. The interest only mortgage will clearly present a lower monthly mortgage payment than the £1500 we're paying, thus masking this more affordable. 

As long as both of you are over 65 or very close to it, the numbers should work for an equity release product to replace the mortgage, without touching your savings.

.. but... you may encounter problems at the advice stage as this product is not a good choice if you plan to downsize in the near future, the advice would usually be to downsize first and then use equity release to assist with the purchase of the smaller property if necessary, but it looks like you've left it too late for that...

The other possible concern would be the need to refurbish, hopefully the £600,000 valuation is based on current condition, not post-refurbishment?

Similarly the equity release lenders can be picky about location, adjacencies and type of construction, but if it is a normally constructed house, in a typical residential location without any retail or commercial premises adjacent you should be OK...

... £660k and 'London' suggests that this might be a flat though..?

Sistergold

MWT said:

raygoodlett said:

Are there any other options available to us..? I find it difficult to comprehend where the risk is..! The downsizing of our present home is our 'payment vehicle' and the fact that there is good equity in the house surely mitigates risk as well. The interest only mortgage will clearly present a lower monthly mortgage payment than the £1500 we're paying, thus masking this more affordable. 

As long as both of you are over 65 or very close to it, the numbers should work for an equity release product to replace the mortgage, without touching your savings.

.. but... you may encounter problems at the advice stage as this product is not a good choice if you plan to downsize in the near future, the advice would usually be to downsize first and then use equity release to assist with the purchase of the smaller property if necessary, but it looks like you've left it too late for that...

The other possible concern would be the need to refurbish, hopefully the £600,000 valuation is based on current condition, not post-refurbishment?

Similarly the equity release lenders can be picky about location, adjacencies and type of construction, but if it is a normally constructed house, in a typical residential location without any retail or commercial premises adjacent you should be OK...

... £660k and 'London' suggests that this might be a flat though..?

There are houses in London for less than £600k

Thrugelmir

How much do you need to raise to refurbish the property? 

MWT

Sistergold said:

MWT said:

... £660k and 'London' suggests that this might be a flat though..?

There are houses in London for less than £600k

Depends on your definition of 'London' as well of course, but I did say 'might' and it is an important factor in regard to the ease of obtaining a quick solution, hence asking...

In any event, on a re-read the post does say 'house' so that is sorted.