Interest only

LeroyBoyce

Hello all,

My mortgage is about to expire. The lowest new deal means it will go up by about £500 a month.

I contacted NatWest to ask why there were no "Interest-only" options on my renewal, as I would like to go this route.

They told me they are only available for those on £75k per year, or greater!

I told them if I was on £75k, I'd be able to afford the repayment option!

I am getting pretty worried about my mortgage costs, as I already live very cheaply.

My question is, does anyone know of a provider who can offer a I-O mortgage on lower salaries?

CSI_Yorkshire

Would you have a method of paying off the capital at the end of the interest-only period?  There might be some reluctance without that.

zagubov

Just to give a heads-up you'd probably have to undergo a hard credit-check if you switch from a repayment to an interest-only mortgage, even if it's with your current mortgage provider - it's regarded as a totally different product.

Annisele

Interest only mortgages are much less available than they used to be, and I'm not aware of any lender who will allow interest only on a main residence unless there's an acceptable repayment vehicle in place. The difficulty is that "interest only mortgage payments" plus "payments towards a repayment vehicle that is acceptable in the lender's eyes" often costs more than the repayment mortgage would have done. In other words, you'll only get an interest only mortgage if you don't need one.

Depending on your age, extending the term is another possibility. It'd mean higher costs over the term of the mortgage, but if it's possible it would lower your payments now.

MWT

LeroyBoyce said:

My question is, does anyone know of a provider who can offer a I-O mortgage on lower salaries?

Interest only without a solid repayment vehicle is a very bad idea, which is why it isn't a generally available option.

You only have to look at the posts we get on here each month from people reaching the end of their mortgage with no way to repay the capital to see why...

Annisele said:

Depending on your age, extending the term is another possibility. It'd mean higher costs over the term of the mortgage, but if it's possible it would lower your payments now.

This is a much better idea if it is possible...

LeroyBoyce

My LTV is 50%, so I'd settle when the house is sold.

GrumpyDil

But as it is your main residence where will you live after selling that house?

If you are coming up to retirement and have a cash lump sum available that might give some options but with an LTV of 50% that sounds difficult. 

LeroyBoyce

My plan is to rent after selling up.

Annisele

LeroyBoyce said:

My LTV is 50%, so I'd settle when the house is sold.

Lenders tend to be deeply sceptical about a plan to use the sale of the property to repay a residential mortgage. For a BTL, fine - but for the property you're living in, selling it leaves you the problem of nowhere to live.

I know you've explained that your plan is to rent when the time comes. But from the lender's perspective, if selling was palatable to you you'd have done it already. Plus, if your LTV is only 50% I'd expect renting a similar property to cost more than paying a mortgage on (effectively) half a property - so if your mortgage is unaffordable, renting might be worse.

The "sell up" plan does look more plausible in some circumstances than others. A single parent living in a four bed detached along with their 18 year old triplets can very plausibly say they intend to downsize in a few years. That doesn't work so well if you're currently living alone in a studio flat. But lenders don't tend to distinguish quite that finely; most of them just say that sale of property isn't an acceptable repayment vehicle.

In your shoes I think I'd go see a broker. I very much doubt that interest only is an option for you, but if it is a broker will be able to find the right lender for you. A broker would also be able to talk you through other ways to reduce monthly costs, eg extending the term.

K_S

@LeroyBoyce Yes there are lenders that will consider I/O mortgages without a minimum income BUT they will have other criteria like minimum equity (£ and %), minimum property value, acceptable repayment plan, etc.

Downsizing (sale of main residence to buy a smaller property) is an acceptable repayment plan to some of the above lenders, subject to plausibility. But selling to then rent is unlikely to be an acceptable repayment plan to most lenders.

An alternative to bring down the monthly payment might be to stretch the term. If you're in a desk based occupation and not close to retirement yet, there are mainstream lenders who will go to 80 on the term, that might help reduce the monthly payment. 

LeroyBoyce said:

Hello all,

My mortgage is about to expire. The lowest new deal means it will go up by about £500 a month.

I contacted NatWest to ask why there were no "Interest-only" options on my renewal, as I would like to go this route.

They told me they are only available for those on £75k per year, or greater!

I told them if I was on £75k, I'd be able to afford the repayment option!

I am getting pretty worried about my mortgage costs, as I already live very cheaply.

My question is, does anyone know of a provider who can offer a I-O mortgage on lower salaries?

LeroyBoyce

Thank you for so much advice.

I bought this house very cheaply, and am in the process of restoration. I am hoping this will have added sufficient value (about £75k) to the value to make the I/O viable.

I figure, if there is any extra income at the end of the month, from overtime, for example, I can overpay the mortgage. I am attracted to it being my choice.

However, if I'm on repayment and I cannot pay for a few months, then I could have the place taken off me, couldn't I?