Interest Only Mortgage - FSA regulations

MartynwithaY

Hi all

Can anyone explain why, when applying for a remorgage with HSBC they were prepared to lend me the full amount (£81k) for a repayment mortgage, but only £53k for an interest only one?

The lady I spoke to said it was due to FSA regulations on the amount needed to fund the investment vehicle, reducing my ability to meet the monthly mortgage payments.

But the way I understand it is that the amount needed to fund the investment is the difference between repayment and i/o amounts (providing that the investment grows at a rate equal to or greater than the mortgage rate). Any ideas?

Martyn.

TEDDYRUKSPIN

Martyn,

When the advisor actually means FSA they don't really mean it. What they are trying to explain to you is that this bank, HSBC, follows the code of treating customers fairly and responsible lending.

What you have got completely wrong is that you can not borrow the amount of £81k because you have no repayment vehicle. Simple as.

By placing this at £53k is correct as the LTV must be below 80%. This is to prevent any negative equity and you are considered medium risk.

I believe you repayment vehicle is by selling the property? What you mis-understand, this bank does not like selling people's house. They are not in to repossession and do not want to be associated with such a thing.

ANSWER:

£53k is the maximum due to your loan to valuation and also affordability. The must take in to account a repayment vehicle. If you do not have one, they will calculate the monthly repayments based on a capital repayment amount even though you are paying interest only.

SOLUTION:

Stick with capital repayment.