Converting to interest only mortgage (Santander / Alliance & Leicester))

msallen · 19 August 2019 at 8:10AM

Hi all

I have a mortgage with Santander (its actually an old Alliance & Leicester one), and would like to convert it to interest only - at least for a couple of years.

Following a recent redundancy and then cancer diagnosis I have decided to completely change my life and so have signed up for a post-grad course (lasting about 20 months) which starts next month.

I could possibly just about survive to the end of it from savings, but it will be very tight indeed, so I am looking at ways of reducing outgoings.

The largest of these is my mortgage of course, and about 80-90% of the payment is capital, so it would be ideal if I could amend this to interest only - even if only for the duration of the course.

I'm about 17 years through a 25 year mortgage, and have never missed a payment, or indeed had any issues with Santander (and am one of the "old Select" account holders).

Given the above can anyone advise whether this is even feasible, or when I tell Santander that I no longer have an income will it have a detrimental effect on my relationship them. (I couldn't care less if they stripped me of "Select" status though)

If it is feasible, has anyone done this before (or does anyone work for Santander) who can share their experience, how they went about it, and anything else you think I need to consider (for example I pay a pretty decent interest rate now - 0.99 above base - would this likely increase or remain the same).

Thanks

csgohan4 · 19 August 2019 at 8:16AM

Ask Santander, they are obliged to at least consider your hardship, but even if you got interest only, it won't be for long

You may be able to get payment holiday as another option, but that would just be added to the mortgage and only temporary and shorter

Btw Select status is a gimmick, Santander tried to entice me from leaving the select account by saying you will lose your gold coloured card, how lame.

msallen · 19 August 2019 at 10:23AM

Thanks csgohan4. Its not a "payment holiday" I am after though, its to convert to an interest only mortgage, which of course is a perfectly valid mortgage type in its own right, not just something they offer to people in hardship for a short period. Is this likely to be possible anyone? If not I'd rather not inform them I currently have no income.

(Also I don't have a Select account. That's what I meant by "old Select" - it was originally a 'status' attached to the customer rather than an account type. I've commented on here before how worthless it is - to me at least.)

AnotherJoe · 19 August 2019 at 10:34AM

I suggest you say that due to medical treatment you will have reduced income and are looking to go IO only for a couple of years. That may assist them in keeping you on the current interest rate.

If you just said you wanted to go IO only they may well treat that as a new deal and give you a much worse rate which will negate much of the benefit of going IO.

msallen · 19 August 2019 at 10:44AM

Thanks AnotherJoe. It may come down to that. However as I can't get into a branch until Wednesday or Thursday, I'll hold off and see if anyone who has done this (or works for them) adds any first hand experience before then.

MortgageMamma · 19 August 2019 at 12:04PM

Santander Lending Criteria

We allow interest only applications provided there is an acceptable
source of funds to repay the capital at the end of the mortgage.
For new customers and existing borrowers who are increasing the
interest only amount:
¡ Where any part of the mortgage is on interest only, and the
combined gross income is less than £100,000, the maximum
income multiple is 4.45 times income. Income may be a
combination of primary and secondary incomes and proof of
income must be evidenced.
¡ Where any part of the mortgage is on an interest only basis the
maximum LTV for the overall lending is 85%. Where at least one
applicant has a gross income of more than £250k, any lending
over 75% LTV must be on a capital and interest basis. For an
applicant with gross income of £250k or less, any lending over
50% LTV must be on a capital and interest basis.

msallen · 19 August 2019 at 1:20PM

Thanks MortgageMamma. Funds to pay the capital at the end isn't an issue - I can use the 25% Tax Free part of my pension(s), which I can access in just under 3 years if needs be.

However I still have the issue of zero income for the next 2 years, which I don't know how they'll react to.

I guess I'm just going to have to decide whether to run my savings right down to zero over the next couple of years or to inform Santander of my situation and hope that it doesn't lead to unintended consequences.

MortgageMamma · 19 August 2019 at 1:25PM

Will you have any income at all? even student finance?

You can easily talk through your options with them without committing to anything, call them up with a "what if" scenario and see what they say

msallen · 19 August 2019 at 1:43PM

Yes I have taken out a Student Masters Loan, but its only for about £2.5K more than the cost of the course. (a little under £11k against a little over £8K)

If they count that as income then that will probably help a little, but I wouldn't have expected them to.

csgohan4 · 19 August 2019 at 4:46PM

For those reading in future, you should consider income protection when your relatively healthy to have a better deal than later on in life, when you have a medical history making it more difficult find cover

May have been useful in this case, even if it pays out for 3 years before retirement

Thrugelmir · 19 August 2019 at 5:01PM

msallen wrote: »

However I still have the issue of zero income for the next 2 years, which I don't know how they'll react to.

Lenders are highly regulated now. Internal policy will be such that they won't enter into an arrangement where the customer is put at "financial risk". As they themselves could be found culpable if matters take a turn for the worst. Their decision can only be based on today's facts not what might happen.

Speak to the lender. As options might be available.

Converting to interest only mortgage (Santander / Alliance & Leicester))

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