Seeking advice on remortgage dilemma

Sandwich

We've got a mortgage product that runs out at the end of the year and based on today's market rates we're looking at an increase in monthly payments of around £500, which is a lot to us. Obviously my partner and I are planning, trying to figure out what we can do to increase our income so we can afford this, but it's got me thinking about the worst case scenario.

What happens if we simply can't afford our mortgage payments next year? What options will we have other than to sell or have the home immediately repossessed? What options do mortgage providers usually give customers in this kind of scenario? 

Also just to note, our options are somewhat limited in that we have a high LTV (86% currently), and I don't know if we'd be able to do a term extension given that we're both nearly 40 already. Interest only with the aim of reverting to a repayment mortgage in 6–12 months sounds the most appealing in principle (although I know it will significantly delay us being mortgage free), but I don't think we'd qualify given that neither of us has any kind of financial vehicle (savings, stocks, a big pension) that seems to be a requirement for interest only. I also don't want to do anything that will wreck our chances of ever getting a half-decent mortgage product down the line. 

Anyway, any advice anyone has would be appreciated. 

At8

Hi Sandwich, from the below I think you should be able to get an interest-only option if you decide that's what you want.  

Chancellor agrees new support measures for mortgage holders

23 June 2023

The lenders – which cover over 75% of the market - agreed to a new mortgage charter providing support residential mortgage customers. These are:

• Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
• Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
• Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
• A new agreement between lenders, the FCA and the government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check or affecting their credit score.
• Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
• Providing well-timed information to help customers plan ahead should their current rate be due to end.
• Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.

https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders

Sandwich

At8 said:

Hi Sandwich, from the below I think you should be able to get an interest-only option if you decide that's what you want.  

Chancellor agrees new support measures for mortgage holders

23 June 2023

The lenders – which cover over 75% of the market - agreed to a new mortgage charter providing support residential mortgage customers. These are:

• Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
• Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
• Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
• A new agreement between lenders, the FCA and the government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check or affecting their credit score.
• Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
• Providing well-timed information to help customers plan ahead should their current rate be due to end.
• Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.

https://www.gov.uk/government/news/chancellor-agrees-new-support-measures-for-mortgage-holders

Thanks. Yes, I'd seen this announcement but I think the lenders are still working out the details because when I called and spoke to someone at Halifax they couldn't confirm if the bit in bold means the usual eligibility requirements for interest only (i.e., you need to prove you will have the means to pay off the outstanding balance at the end of the interest only mortgage) still applied. If they do apply, I don't see this being useful to many struggling borrowers. (They said they should have more details in a week or so.)

On the other hand, if it turns out you can get a temporary interest only deal without those requirements, it will give a lot of people some breathing space. 

Has anyone got any info from their bank about how they're interpreting this new agreement? 

MWT

Sandwich said:...they couldn't confirm if the bit in bold means the usual eligibility requirements for interest only (i.e., you need to prove you will have the means to pay off the outstanding balance at the end of the interest only mortgage) still applied. If they do apply, I don't see this being useful to many struggling borrowers. (They said they should have more details in a week or so.)

It will not have the usual requirements as it is only for a 6 month period...

The catch though is that if you just switch to IO for 6 months then switch back to repayment without changing the term of the mortgage, the monthly payments are going to be even higher than they were before as you have to catch up on the capital element that was not covered during the IO period...

Where possible it might be better to extend the term, and then later on make overpayments when feasible to offset the change.

Sandwich said:

...and I don't know if we'd be able to do a term extension given that we're both nearly 40 already.

Some lenders will go up to 80 years old if there is a believable option to continue working to that age (office based, clerical type work, not physical labour)

simon_or

Sandwich said:

Also just to note, our options are somewhat limited in that we have a high LTV (86% currently), and I don't know if we'd be able to do a term extension given that we're both nearly 40 already.   mortgage product down the line. 

Nearly 40 is not the end of the line as far as term is concerned! If the increase will cause you serious financial issues, then stretching the term should be on your radar.

There are a handful of banks that will go all the way to 80 on the term if you're in a desk based job. So you could possibly get a full 40 year term. Will that help relieve the pressure somewhat?

Having a term to 80 does not mean anyone is forcing you to work till 80 or keep the mortgage till 80, you can always overpay and pay it off before then. At least this will give you some breathing space to think about how to tackle it.

If your fixed rate period runs out in December, don't delay, speak to a broker now or DIY and get an offer in hand for the longest term you can get. If mortgage rates go up between now and December, you sit tight and complete on this offer. If mortgage rates go down before December then you just switch to the lower rate. 

Sandwich

I spoke to someone from Halifax on the phone today and they suggested I might benefit from asking for a revaluation as part of the product transfer, given that we’re 86% LTV and Zoopla values our house about £15000 more than Halifax. Is that a good idea or more likely to just increase our LTV given what’s happening with prices? 

Also just to note, we haven’t done any substantial work, just a bit of decorating and landscaping, so if they send someone around they won’t see much difference. It would just be a case of taking a punt really, in the hope of getting a slightly more affordable rate. 

themanfromportobello

Sandwich said:

I spoke to someone from Halifax on the phone today and they suggested I might benefit from asking for a revaluation as part of the product transfer, given that we’re 86% LTV and Zoopla values our house about £15000 more than Halifax. Is that a good idea or more likely to just increase our LTV given what’s happening with prices? 

Also just to note, we haven’t done any substantial work, just a bit of decorating and landscaping, so if they send someone around they won’t see much difference. It would just be a case of taking a punt really, in the hope of getting a slightly more affordable rate. 

I would take zoopla with a pinch of salt TBH. The only valuation that matters is the lenders. They would certainly do a valuation as part of any remortgage, esp at the moment with house prices falling.