Interest only mortgage with ISA repayment vehicle

twill848

Hi,
im on my daughters mortgage. We are wanting to do some additional borrowing for house renovations with the original mortgage on repayment and the extra borrowing on interest only ( because of my age we can’t extend the term and want to ease into the extra cost slowly especially as cost will go up anyway as our fixed interest deal is ending). We have passed affordability and the agreement to do part repayment part interest only. What I am struggling with is that whilst I am happy to use my investment ISA ( full value of additional borrowing) as the repayment vehicle, the lender (Santander) wants it to be mortgage assigned. They won’t explain to me what this means or how I do it. Any advice or experience of this?

tacpot12

I've tried googling, but can't see any useful advice. However, it's likely that assigning the ISA to them will stop you making any withdrawals from the ISA without their permission. It might be better to ask your ISA provider if they have the ability to assign the ISA to a mortgage provider. If they don't you might need to transfer the ISA to a provider who can do this. 

twill848

Thanks Tacpot12. Yes, I fully expected not to be able to make withdrawals, that’s fine. I’ve asked my financial advisor to look into it ( he’d never come across it before either). I can find nothing that tells me if it’s assignable or who provides assignable ISAs. Very odd. I think it’s just a way to put you off interest only 🤷‍♀️

dunstonh

What I am struggling with is that whilst I am happy to use my investment ISA ( full value of additional borrowing) as the repayment vehicle, the lender (Santander) wants it to be mortgage assigned. 

It was normal back in the day to have the investment vehicle assigned to the lender.  That was normal with endowment providers,, but it's not possible with ISAs (apart from their in-house ISA when they used to offer them).

So, the lender is asking for something you cannot do anymore.  However, its also rare to use an investment vehicle for mortgages nowadays.  So, their rules probably haven't change for a very very very long time.

k12479

dunstonh said:

...the lender (Santander) wants it to be mortgage assigned. 

....but it's not possible with ISAs (apart from their in-house ISA when they used to offer them).

So, the lender is asking for something you cannot do anymore.

They still appear to offer a Stocks & Shares ISA: https://www.santander.co.uk/personal/savings-and-investments/investments/stocks-and-shares-isa

dunstonh

k12479 said:

dunstonh said:

...the lender (Santander) wants it to be mortgage assigned. 

....but it's not possible with ISAs (apart from their in-house ISA when they used to offer them).

So, the lender is asking for something you cannot do anymore.

They still appear to offer a Stocks & Shares ISA: https://www.santander.co.uk/personal/savings-and-investments/investments/stocks-and-shares-isa

I don't believe that is an S&S ISA designed to be used with an interest only mortgage.       Back in the day, lenders offered an S&S ISA as a repayment vehicle and the ability to assign.   That isn't the case any more.  I doubt their current product (which is a relatively new offering) has the functionality.   I could be wrong but its unlikely.

mr_jrt

So, I spoke to Santander earlier today to try and arrange an interest-only mortgage with the intent to use a combination of pension and S&S ISA as my repayment vehicle (though I fully expect the ISA to more than cover it). For simply raising awareness, it seems they have not permitted pension lump sums to be utilised for quite some time. Regarding the ISA, I encountered the same issue referred to in this thread, but interestingly I discovered that they don't seem to have that requirement here: https://www.santanderforintermediaries.co.uk/products-and-criteria/mortgage-lending-criteria/

Investment portfolio: shares, unit trusts, Open Ended Investment Companies (OEIC’s), Investment Bond

Current cash value

Latest statement issued by the administering company (must not be more than 12 months old). Must show current investment value from last statement. Use 100% of the current value only, with no growth projections or added sums, even where future monthly investments are being factored into expenditure.

Which says investment portfolios can be used, utilising their current cash value. Which seems bonkers to me, if you had investments covering the full principle of your mortgage when taking out said mortgage, you wouldn't need the mortgage in the first place!

There are additional conditions as well that state a S&S ISA is acceptable, should you meet the seemingly bonkers requirement above:

Investment vehicle – additional requirements

• Investments may be held in an ISA but this is not a requirement. Cash ISAs are not acceptable.
• Must have been held for a minimum of 12 months and cover the interest only amount.
• Must be administered by an FCA regulated financial services firm with an ‘authorised’ or ‘EEA authorised’ status.
• All owners of the repayment vehicle must match the names shown on the application.
• The applicants must not have reduced their holding since the last statement.

I suspect I will just have to take my business elsewhere.

dunstonh

Which says investment portfolios can be used, utilising their current cash value. Which seems bonkers to me, if you had investments covering the full principle of your mortgage when taking out said mortgage, you wouldn't need the mortgage in the first place!

So, you feel that it is bonkers to use an ISA when the capital could go against the mortgage....

mr_jrt

No, I feel it's bonkers to require that you have the full amount already. As a savings vehicle for growing your pot to reach that level a S&S ISA is a great tool as you will likely get a greater return on your capital than you are charged in mortgage interest. Likewise, a pension where the same applies, but you also get a significant element of tax relief.

How many people have a spare £150k+ just lying around?