Paying off Interest Only Mortgage issues

njbhorn

We have an interest only mortgage due to be paid off by my 65th birthday next year in November. 

Our intention was to sell a rental property we own to cover the mortgage. Sadly selling said property the buyer pulled out after about 3 months with the latest batch of interest rate rises. 

So to get some income back we have let flat for 6 months. However that is another 6 months nearer to the time we have to clear the mortgage and house prices seem to be slow compared to the rental market. 

So the question is what are our best options

1. Try and extend mortgage term until house prices get back to a level to cover our mortgage. 

2. Sell property in 6 months and make up shortfall with funds from pension pot
3. Take 25% from pension pot and offset the interest only mortgage effectively getting our current interest rate on that money. 

Any other suggestions or a hybrid of these? 

Before the interest hikes our mortgage was about £600 a month depending on our offset amount. It is now up to about £1700 which is hurting as you can imagine. If we’d have sold flat we would be at least £700 a month better off. 

Timing is everything 🙄

Many thanks for any help and advice. 

Nigel

tacpot12

Yes, this is very unfortunately and another strike against interest-only mortgages. 

Analysing the options you suggest, only option 2 seems to be a permanent fix for your problem (the others don't fix the problem, they just stall it). You have to sell the flat to repay your mortgage, and your timing to do this is constrained by the tenancy agreement you have signed. But selling asap seems to be the best way to reduce the impact of rising interest rates on the cost of your mortgage. 

Sarahspangles

I suspect it’s not the right answer but….

I’d want to secure the roof over my head as a first priority. You could take a BTL mortgage on the flat and use that plus a withdrawal from your pension pot to repay the mortgage on your own house. Then continue to let the flat to service the BTL mortgage and time its sale to recover some of your lump sum. You could even sell it tenanted. But I expect the higher BTL interest rates make this less viable, unless it becomes tax-efficient for you to be a landlord in retirement. 

silvercar

If you really think prices will go up in the medium term then don't sell too quickly. Doing so only crystallises your losses (or lack of gain). If you can take a new mortgage for a few years that would tide you over. Or a BTL mortgage as has already been suggested.

You have tax considerations to consider - possible CGT on the rental if sold, tax on pensions etc There is also your financial planning into retirement, does a rental income form an attractive component of your retirement income?

njbhorn

Thanks people appreciate the advice. As always it is good to hear if you've missed out any options or something glaringly obvious.

I suspect our best bet is to sell the flat for whatever we can get for it in six months and indeed try to sell it whilst tenanted this time.

We made the mistake of waiting for the flat to be empty last Septmember then on the Estate Agents advice not doing much to the flat but we got a buyer quite quicky but the purchase dragged on over Christmas into the New Year and they got cold feet as the interest rates went up and the flat looked a bit tired when empty.

They did suggest re-negotiating the price but by then we had lost faith in them and didn't want to be taken for mugs.

We're hoping to simplify our finacnes going forward as we both approach retirment age so getting shot of the flat is the best option I guess.

Thanks again.

JM68

Some would be buyers won't offer on a flat that has tenants.  Also, most BTL buyers are also impacted by the interest rate rises so are looking for much higher yield.  Both of these factors could impact price/demand for it.

Also, when looking recently, we saw a lot of 'tired' BTL flats and maisonettes being offered for sale at prices similar to those in very good condition.  We also had in mind the current costs to get any trade work done. 

In the event we proceeded on one that was previously rented but was empty and had been refurbished by the time it came onto the market.