Difficulties switching to interest only morgage after income reduction

essentialjc

We took mortgage out in 2021 as a Contractor mortgage.  After the pandemic the contactor market took a hit and it was difficult to land contracts, and in particular the industry I am in has seen a significant decline.

As such, over the past 4 years I have landed and lost 3 contracts through no fault of my own. Each time I sought government help but obviously this is only a limited amount of money. To continue paying the mortgage I was resorting to extreme measures. Selling family car, using credit cards and borrowing off family members to name a few.

I sought help via Step Change debt guidance. They subsequently recommended I undertake an IVA for the eye watering debts I was building up. I am now on this and have been for nearly 2 years. 

At the end of last year I managed to get a short term contract with a potential view to going permanent. The idea of going permanent was obviously very attractive with what has happened and would cease all the uncertainty, here in lies the problem! The permanent salary is considerably less than what I was taking home as a contractor.  

Following  further advice, we also used the mortgage charter for a 6 month period, this payment amount of the interest only portion is just manageable. In all of the tumultuous times, we never missed a payment, and the last couple of months lower payments have been extremely helpful. After discussing this with our mortgage advisor, he suggested we try to get interest only or a lower payment for a period of time to give the breathing space we need to get financially stable. 

Our children are growing fast, in a few years we will be looking to sell this house as we wouldn't need one of this size.  

Our lender Metro are refusing however to switch us over to an interest only mortgage for a period of time. We have now racked up large amount of arrears. 

Surely we cant bee the only peopl,e in this predicement out there?

MattMattMattUK

essentialjc said:

We took mortgage out in 2021 as a Contractor mortgage.  After the pandemic the contactor market took a hit and it was difficult to land contracts, and in particular the industry I am in has seen a significant decline.

As such, over the past 4 years I have landed and lost 3 contracts through no fault of my own. Each time I sought government help but obviously this is only a limited amount of money. To continue paying the mortgage I was resorting to extreme measures. Selling family car, using credit cards and borrowing off family members to name a few.

I sought help via Step Change debt guidance. They subsequently recommended I undertake an IVA for the eye watering debts I was building up. I am now on this and have been for nearly 2 years. 

At the end of last year I managed to get a short term contract with a potential view to going permanent. The idea of going permanent was obviously very attractive with what has happened and would cease all the uncertainty, here in lies the problem! The permanent salary is considerably less than what I was taking home as a contractor.  

Following  further advice, we also used the mortgage charter for a 6 month period, this payment amount of the interest only portion is just manageable. In all of the tumultuous times, we never missed a payment, and the last couple of months lower payments have been extremely helpful. After discussing this with our mortgage advisor, he suggested we try to get interest only or a lower payment for a period of time to give the breathing space we need to get financially stable. 

Our children are growing fast, in a few years we will be looking to sell this house as we wouldn't need one of this size.  

Our lender Metro are refusing however to switch us over to an interest only mortgage for a period of time. We have now racked up large amount of arrears. 

Surely we cant bee the only peopl,e in this predicement out there?

You will not be the only people who cannot pay your mortgage, but that is of no relevance. 

You cannot afford to pay your mortgage, that means you need to sell the property. Your mortgage provider are under no obligation to offer you an interest only mortgage and indeed the rules on them offering interest only mortgages are rather restrictive, selling the property with the mortgage directly on it is not usually a permitted strategy (though selling a separate investment property/second home is acceptable).

born_again

Interest only is usually short term fix & if you are already in arrears, then there must be affordability issues. 
Also what is a few years for the children? Metro or other lender would want assurances to cover the amount of the mortgage being paid back at that point, not just a will sell when kids reach X age. As what if kids, are not for moving out (mines still here at 30 given not able to afford mortgage.
You may find another lender via a broker. But that would be a long shot depending on the amount of arrears.

saajan_12

essentialjc said:

Our children are growing fast, in a few years we will be looking to sell this house as we wouldn't need one of this size.  

Our lender Metro are refusing however to switch us over to an interest only mortgage for a period of time. We have now racked up large amount of arrears. 

Whats your LTV? A few years is a long time for the balance to stay static, and they don't know whther you'll then be able to buy another suitable house with the equity, or raise a mortgage for what you need then, or still need a bigger place because plans change.. They need to know you have a pay off strategy and selling your home isn't one of them for the reasons above). 
Your broker should have warned this, its not on Metro. 

ACG

Im saying this more for the benefit of anyone reading this. The time to look at interest only was before you went into the IVA and before you started to build up arrears. 

Because of the IVA your pool of lenders is restricted to maybe a handful of lenders. To then combine that with mortgage arrears and interest only, I think you are going to struggle. 

I dont want to say it cant be done, as I cant 100% for sure say that. But I am a good 95% sure what you want cant be achieved in your current situation. Even if it could, the interest rate is likely to begin with a 7 or 8 meaning the reality is you probably will not be much better off each month anyway. 

I suppose there is no harm getting a broker to look into it for you. But I think you need to be prepared that there will be no lenders available. If you were able to clear the arrears, there may be an option once cleared for maybe 3-6 months but appreciate if you could do that you probably would have. 

I think your only way out of this is to sell up. Have a bit of a reset of than start again. It makes more sense to sell up on your own terms, it will reduce legals costs which are no doubt being added to your mortgage balance. It will help from a stress perspective and it will also help you get a better price for your home. 

On a side note, if you cant afford the full payment each month. Make sure you are paying what you can afford. It will ensure the effect of compounding is slower. 

I dont doubt the decisions ahead of you are going to be tough. Hopefully some rich long lost aunt has passed away recently and you are in line for some inheritance but failing that, I think you need to be thinking about what the next couple of months will look like. Best of luck. 

essentialjc

ACG said:

Im saying this more for the benefit of anyone reading this. The time to look at interest only was before you went into the IVA and before you started to build up arrears. 

Because of the IVA your pool of lenders is restricted to maybe a handful of lenders. To then combine that with mortgage arrears and interest only, I think you are going to struggle. 

I dont want to say it cant be done, as I cant 100% for sure say that. But I am a good 95% sure what you want cant be achieved in your current situation. Even if it could, the interest rate is likely to begin with a 7 or 8 meaning the reality is you probably will not be much better off each month anyway. 

I suppose there is no harm getting a broker to look into it for you. But I think you need to be prepared that there will be no lenders available. If you were able to clear the arrears, there may be an option once cleared for maybe 3-6 months but appreciate if you could do that you probably would have. 

I think your only way out of this is to sell up. Have a bit of a reset of than start again. It makes more sense to sell up on your own terms, it will reduce legals costs which are no doubt being added to your mortgage balance. It will help from a stress perspective and it will also help you get a better price for your home. 

On a side note, if you cant afford the full payment each month. Make sure you are paying what you can afford. It will ensure the effect of compounding is slower. 

I dont doubt the decisions ahead of you are going to be tough. Hopefully some rich long lost aunt has passed away recently and you are in line for some inheritance but failing that, I think you need to be thinking about what the next couple of months will look like. Best of luck. 

Thanks for this, yea of course but with the IVA we will lose a lot of any equity to the creditors hence why would be great to have an interest only period for the remaining duration of the IVA and then sell when this obstacle has passed

ACG

Speak to the IVA company and ask if you were to sell up, would they take a lower figure? 

I understand what you are saying and I am not going to try and convince you otherwise. You know the situation more than we do. 

Just another thought, what happens when your current product comes to an end? Will they allow you to switch products being in arrears or are you going to be on SVR? 

All I will say on this is just take a good luck at everything and make your decisions with your head rather than your heart. By selling up and clearing the IVA, you start the clock ticking for a normal rate mortgage in 3 years. By dragging it out, the 3 years will not start until the IVA is settled which could be years away depending on the agreement you have. 

silvercar

Would it be worth selling up and renting for a few years? Then you could buy when you only need a smaller place.

essentialjc

https://forums.moneysavingexpert.com/discussion/comment/81795033#Comment_81795033

But we are panicking now that as I moved onto this IVA my credit record will be shot. Would I fail any potential renter credit checks? Just don't know where to go