When did interest only mortgages get so hard to obtain?

janewatts

Hi there

I'll try to keep this post short with only relevant info. In July last year my partner and I bought our current property on bridging because we needed to act fast to secure it - our dream house on the coast with some land. Property bought just in my partner's name as I have a CCJ dropping off my credit file in two months' time. He has an unencumbered investment property, which is currently going through a sale. Those proceeds will be used to buy another investment property closer to where we live now, we don't want to use those funds to repay the bridge although bridging is using it as security, so unless we remortgage our home first, we won't have a say.

Our old home completed in February and those proceeds went straight towards the bridging. There's now a bit under £200k outstanding, which we planned to repay by refinancing our home once 6 months had passed, as day 1 remortgages are so hard to get. This was all agreed with Santander via a DIP before we purchased but apparently in the last 10 months their criteria has changed and they now won't lend, they won't even tell us or the broker why, after taking more than 6 weeks, house valued up at £450k fine, all checks were fine, OH has excellent credit record, longstanding employment history around £50k - in fact we were told many times by our broker we were just waiting for the offer to be signed off, but then it didn't materialise. 

We've now been told it's so hard to get interest only because:

- repaying a bridging loan is seen as debt consolidation even though there's not an ounce of debt cons involved, it was purely used to buy our home - would have been useful if someone had told us this beforehand but anyway!

- OH's income isn't at the £75k - 100k level many lenders seem to want. 

So even though our loan is only 44% LTV, there's zero other debts and we have various other investments, which they can't take into account because it's either in BTC or my name, so useless, we are now really struggling to refinance.

Does anyone know of any lenders who don't have a 'computer says no' policy please? Sorry if I've missed out important stuff, I'm happy to add to my post. We don't mind what type of rate we go onto as long as it doesn't have a long ERP, don't mind lender or broker fees on successful offer, but would like it to happen before we die of old age!

We have considered using the rental property to clear the bridging and then getting a capital raising loan, but that will be more expensive and still hard to get interest only, I believe, and won't the lender require us to have a new investment property in mind? Whereas we'd prefer to buy at auction. We also don't know how long the rental property will take to complete as there's a small chain, and our bridging loan expires mid-July and they are already hassling us. So no stress whatsoever!

Really grateful for any help, and sorry this didn't end up a short post after all...

ACG

You are probably looking at the small to medium sized building societies. 

K_S

@janewatts Based on the limited info in your post, it's one of those cases which mainstream lenders will likely find something that they don't like about, especially with interest only thrown into the mix. 

There might be other relevant info in the background, but it just sounds like your broker needs to call around to one of the smaller non-mainstream lenders (doesn't necessarily mean that their rates will be too far off mainstream rates) that use a bit of common sense and matches your circumstances with regard to I/O criteria. What is your broker suggesting as a next step?

steampowered

The idea of interest only mortgages was not to avoid repaying capital. 

The principle of interest only mortgages is that you are supposed to invest in something else alongside repaying the interest, so that you end up with enough money at the end of the mortgage term to pay off the capital. Lots of people failed to do that or found that their investment was insufficient to pay the mortgage, which is why less banks offer those types of mortgages now. 

It sounds to me like you have over leveraged yourself. I dread to think how much you are paying for the bridging loan in interest and fees. It must be eye watering. 

If you have other investments such as Bitcoin, why don't you just sell those investments? It sounds like what you are really doing is borrowing at eye watering rates in order to maintain other investments which will be generating a lower return, which is madness. You can always re-buy more Bitcoin later if you wish. 

janewatts

ACG said:

You are probably looking at the small to medium sized building societies. 

Thanks ACG, I have started calling around these myself now. Few more to follow up tomorrow after finding out Yorkshire consider it debt cons even though we fit all their other criteria. Got told we could go to their IFA only arm, Accord, but their reviews look particularly dire, so I don't think we'll get that desperate 

K_S said:

@janewatts Based on the limited info in your post, it's one of those cases which mainstream lenders will likely find something that they don't like about, especially with interest only thrown into the mix. 

There might be other relevant info in the background, but it just sounds like your broker needs to call around to one of the smaller non-mainstream lenders (doesn't necessarily mean that their rates will be too far off mainstream rates) that use a bit of common sense and matches your circumstances with regard to I/O criteria. What is your broker suggesting as a next step?

It is looking like you're right K_S :-/ 

There really isn't anything else to complicate things, which is why I am so surprised at how hard  this has been. Re our broker, I am not exactly blown away by the knowledge he's displayed, after taking 6 weeks to get nowhere with Santander. His next suggestion was Natwest, and after checking their minimum income myself and finding it was £75k, I asked him who had given our case the go-ahead, he then replied saying oh you're right, they won't take it No other suggestions as of yet. Hence why I'm posting here!  

steampowered said:

The idea of interest only mortgages was not to avoid repaying capital. 

Don't believe anything in my post suggested I thought this    I did say we have more than enough other investments to clear our bridging now, if we chose to, so I'm not too sure where you got the over leveraged bit from either  :DDDDD. We don't choose to do that though and being as ex IFA, I know how awful repayment mortgages are. If you know about the BTC cycle, you know it's not exactly the best time to sell there, but thanks for your input anyway. All opinions appreciated 

Thrugelmir

When did interest only mortgages get so hard to obtain?

2014 when the mortgage market review was finally implemented. Sparked by the events which led up to the near collapse of the UK banking sector in 2007/08. 

Events in the past few months have changed the landscape for the worse. Lenders will therefore be curtailing their risk exposure. In the face of rapidly rising interest rates. Leveraging with debt is always a double edged sword. Some you win some you lose you can say. The era of cheap debt is over. 

Edi81

Are you trying to do this yourself?
you need to a broker to help. 

amnblog

£200,000 to be raised on £450,000 value with £50,000 income?

Why is interest only sought? Presumably you can afford capital repayment? Seeking interest only will considerably reduce your options.

Your Broker clearly has little idea - find one that does.

getmore4less

trimming

janewatts said:

Hi there

I'll try to keep this post short with only relevant info.

In July last year my partner and I bought our current property on bridging

Property bought just in my partner's name

He has an unencumbered investment property, which is currently going through a sale.

Those proceeds will be used to buy another investment property

We don't want to use those funds to repay the bridge although bridging is using it as security,
so unless we remortgage our home first, we won't have a say.

Our old home completed in February and those proceeds went straight towards the bridging. There's now a bit under £200k outstanding

Our old home completed in February and those proceeds went straight towards the bridging.
There's now a bit under £200k outstanding, 

 house valued up at £450k fine, all checks were fine,
OH has excellent credit record, longstanding employment history around £50k 


So even though our loan is only 44% LTV, there's zero other debts and we have various other investments, 

what rates are these options.

what is your income?
any dependants?

Obvious question why interest only? Repayment would be a lot easier.

Ages?

Other option to remove the "consolidation" issue is pay of the bridge first then look at raising funds for the investment property.

Is property still the right investment  for new funds?  the extra SDLT makes the business case harder.

Cash in some of the other investments if property is the better option. 

How have your structured this property in his name only?

Are you married?
if the property is in his name only then you need to watch out for SDLT when you go joint and purchase your share.
if your old home was joint and used some of your funds then there may be gift(with reservation) to consider.

janewatts

I just posted something for my niece and realised I hadn't ever updated here... sadly everything completely got too much last year with my ADHD/anxiety/sooo many other health and family issues to deal with but we did finally manage to re-finance with the West Bromwich. I went direct to them and they were really great, property went into joint names, interest only as we wanted, so all good. Just wanted to say sorry for not replying to the people who took time to respond last year. 

Sarah1Mitty2

Thrugelmir said:

When did interest only mortgages get so hard to obtain?

2014 when the mortgage market review was finally implemented. Sparked by the events which led up to the near collapse of the UK banking sector in 2007/08. 

Events in the past few months have changed the landscape for the worse. Lenders will therefore be curtailing their risk exposure. In the face of rapidly rising interest rates. Leveraging with debt is always a double edged sword. Some you win some you lose you can say. The era of cheap debt is over. 

And let`s all be thankful for that.