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  • FIRST POST
    • Mike48632
    • By Mike48632 14th Jun 19, 6:37 PM
    • 11Posts
    • 2Thanks
    Mike48632
    Interest Only - lender insists on switching rates
    • #1
    • 14th Jun 19, 6:37 PM
    Interest Only - lender insists on switching rates 14th Jun 19 at 6:37 PM
    Hello
    I have a repayment mortgage but I'd like to switch to interest only. I don't want to change anything else. I meet all the lender's criteria for interest only lending, including:
    - minimum income
    - minimum loan size
    - max LTV for interest only
    - minimum equity requirement if using sale of property as repayment vehicle
    - affordability
    My lender is happy with all the above, including sale of property as repayment vehicle. My LTV is only 30%, and equity is close to £500,000.
    They say I cannot simply stop paying the capital, but I must pay off the existing mortgage and take out a new deal. But I'm happy with my current deal - I'm 4 years into a 10 year fixed rate, and I would have to pay about £8,000 in redemption penalties. It doesn't make any sense to me, and there is no explanation offered other than "those are the rules".
    What can I do?
    Last edited by Mike48632; 14-06-2019 at 6:42 PM.
Page 1
    • Kentish Dave
    • By Kentish Dave 14th Jun 19, 7:12 PM
    • 806 Posts
    • 1,492 Thanks
    Kentish Dave
    • #2
    • 14th Jun 19, 7:12 PM
    • #2
    • 14th Jun 19, 7:12 PM
    Two choices, stick with the deal that you agreed with when you took it out or take out a new mortgage on the current terms.

    You seem to think that you can unilaterally change the contract that you entered into, why on Earth would the bank let you do this?
    • Mike48632
    • By Mike48632 14th Jun 19, 8:38 PM
    • 11 Posts
    • 2 Thanks
    Mike48632
    • #3
    • 14th Jun 19, 8:38 PM
    • #3
    • 14th Jun 19, 8:38 PM
    It’s a good challenge Kentish Dave.
    I originally borrowed from this lender 19 years ago, capital and interest. 11 years ago, I phoned them up one day and I asked if I could go interest only. The answer was yes, no questions asked. They switched me to interest only immediately.
    6 years ago I sold the property and bought a bigger one, and increased the size of the mortgage. I kept the “tracker for life” rate on the original loan (they even extended the term of the “tracker for life” rate, from the 12 years remaining to 25 years) but they made me switch from interest only back to repayment (I assume my income at the time did not meet the minimum income requirement for interest only borrowing - but I didn't ask, I was glad to be offered over 5 times income). Presumably, when I had switched from repayment to interest only 5 years earlier, the lender had no minimum income requirement, as they had asked no questions.
    So, given the history with this lender, and the fact that I now meet all the interest only lending requirements (my income is bigger than it was 6 year ago), and in particular the low LTV of 30%, I was expecting to be able to move to interest only.
    Given the history, is it an unreasonable expectation?
    • Kentish Dave
    • By Kentish Dave 14th Jun 19, 8:43 PM
    • 806 Posts
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    Kentish Dave
    • #4
    • 14th Jun 19, 8:43 PM
    • #4
    • 14th Jun 19, 8:43 PM
    Reasonable doesn’t really come into it. Banks don’t do custom products on the whole nowadays, mortgages are pretty low margin business, so they are standardised, piled high and sold cheap.

    There is probably not even a mechanism in place for them to come up with what would be a product that only you had.

    I understand that it’s frustrating, but it’s a bit like asking Tesco to sell you a non-standard tin of beans.
    • zx81
    • By zx81 14th Jun 19, 8:44 PM
    • 23,789 Posts
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    zx81
    • #5
    • 14th Jun 19, 8:44 PM
    • #5
    • 14th Jun 19, 8:44 PM
    Given the history, is it an unreasonable expectation?
    Originally posted by Mike48632
    Yes.

    It's a change of product, so you will need to choose from what is available, either from your current lender or elsewhere.
    • amnblog
    • By amnblog 14th Jun 19, 8:57 PM
    • 11,311 Posts
    • 4,552 Thanks
    amnblog
    • #6
    • 14th Jun 19, 8:57 PM
    • #6
    • 14th Jun 19, 8:57 PM
    Sounds like Barclays.

    This approach does not surprise me.

    What is the objective of going interest only? Cash flow.

    Will they allow you to extend the term?
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Mike48632
    • By Mike48632 14th Jun 19, 9:07 PM
    • 11 Posts
    • 2 Thanks
    Mike48632
    • #7
    • 14th Jun 19, 9:07 PM
    • #7
    • 14th Jun 19, 9:07 PM
    You're right amnblog, it is Barclays.

    And yes, cash flow is the reason, sort of, but not because I can't afford the current capital and interest payments (I can afford them easily), I just have very little cash and want to build up my cash reserves. I'm quite happy to have the c£200k outstanding at the end of the term.

    The current term finishes 4 months before my 70th birthday. I haven't asked whether they'll extend the term. Is it worth asking?
    • Thrugelmir
    • By Thrugelmir 14th Jun 19, 9:57 PM
    • 64,786 Posts
    • 57,201 Thanks
    Thrugelmir
    • #8
    • 14th Jun 19, 9:57 PM
    • #8
    • 14th Jun 19, 9:57 PM
    They say I cannot simply stop paying the capital, but I must pay off the existing mortgage and take out a new deal. But I'm happy with my current deal - I'm 4 years into a 10 year fixed rate, and I would have to pay about £8,000 in redemption penalties. It doesn't make any sense to me, and there is no explanation offered other than "those are the rules".
    What can I do?
    Originally posted by Mike48632
    Switch to an interest only product from the current range. As that appears to be their terms of business. As the customer you have no say in the matter.
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • stevenhp1987
    • By stevenhp1987 14th Jun 19, 10:26 PM
    • 886 Posts
    • 706 Thanks
    stevenhp1987
    • #9
    • 14th Jun 19, 10:26 PM
    • #9
    • 14th Jun 19, 10:26 PM
    You agreed to a ten year fix.

    Switching product or terms means you have to essentially buy out your current contract. This contract will state Early Repayment Charges are repayable if you finish it early.

    You either have to pay the Early Repayment Charge, or keep to your current deal. There is no alternative!

    Why did you get a 10 year fix if you knew it would finish just short of your 70th birthday? Did you expect to be working until 70?!
    • Mike48632
    • By Mike48632 14th Jun 19, 11:15 PM
    • 11 Posts
    • 2 Thanks
    Mike48632
    You agreed to a ten year fix.
    Why did you get a 10 year fix if you knew it would finish just short of your 70th birthday? Did you expect to be working until 70?!
    Originally posted by stevenhp1987
    I'll be 56 when the 10 year fix finishes, but the term doesn't finish until I'm nearly 70 (25 years form age 44). Yes, I expect to work beyond age 65. I had my 3rd child when I was 48. They don't pay for themselves.
    • Kentish Dave
    • By Kentish Dave 15th Jun 19, 5:11 AM
    • 806 Posts
    • 1,492 Thanks
    Kentish Dave
    No, they don’t pay for themselves but it’s not the bank’s responsibility to waive the terms because you decided you wanted a bigger family.

    It sounds like some help with budgeting may be useful for you, why not post a statement of affairs to let people try to give you decent advice about where savings can be made?
    • getmore4less
    • By getmore4less 15th Jun 19, 7:52 AM
    • 37,363 Posts
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    getmore4less
    Is it all now on the 10y fix or do you still have the ported bit on tracker?
    • JMA74
    • By JMA74 15th Jun 19, 11:20 AM
    • 682 Posts
    • 497 Thanks
    JMA74
    Check your mortgage offer to see what rights you have.
    There will be a bit there probaly saying you have the right to transfer the mortgage to another property (subject to acceptance).

    I guarantee there wont be a bit saying you have the right to change to interest only in this current mortgage.

    From experience of working behind the scenes of a high street bank, the only way they will agree this mid term is for you to plead hardship but that is a good few years ago so may be different
    I am a Mortgage Adviser

    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Mike48632
    • By Mike48632 15th Jun 19, 4:06 PM
    • 11 Posts
    • 2 Thanks
    Mike48632
    I’d never seen this forum before yesterday. I think it’s great. Thanks for all your replies.
    Is it all now on the 10y fix or do you still have the ported bit on tracker?
    Originally posted by getmore4less
    I have £139k outstanding on the 10 year fix (ending in 6 years) at 3.14%, and £66k outstanding on the tracker for life at 0.29% over base that I ported. Both have 19 years remaining.
    It sounds like some help with budgeting may be useful for you
    Originally posted by Kentish Dave
    Thanks for the offer Kentish Dave but the problem is not budgeting, it’s that my ambitions and aspirations are bigger than my financial resources! I’ll come clean. The real reason for wanting to go interest only is to fund private school fees. I’ve got a lot of excess income after essentials, but not enough for 3 sets of school fees.
    Check your mortgage offer...
    ...the only way they will agree this mid term is for you to plead hardship
    Originally posted by JMA74
    Thanks for the suggestion JMA74 but it wouldn’t stack up as my income is more than sufficient to cover the current repayments (ignoring school fess). I will check the mortgage offer.
    • Thrugelmir
    • By Thrugelmir 16th Jun 19, 3:25 PM
    • 64,786 Posts
    • 57,201 Thanks
    Thrugelmir
    I’ll come clean. The real reason for wanting to go interest only is to fund private school fees. I’ve got a lot of excess income after essentials, but not enough for 3 sets of school fees.
    Originally posted by Mike48632
    Would extending the mortgage term, while remaining on a repayment basis. Free up sufficient cash flow. Lenders aren't normally unreasonable if presented with the full facts.
    “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.”
    ― Niall Ferguson
    • getmore4less
    • By getmore4less 16th Jun 19, 6:25 PM
    • 37,363 Posts
    • 23,054 Thanks
    getmore4less
    Ask if they will let you change the tracker to IO.

    That would get part way to your goal(freeing up cashflow) without penalty.
    Might have to give up a great rate though.

    10y fix with school fees on the horizon might not have been the best move.

    That raye is looking high these days with 2.4% 10y fixes available.
    • Mike48632
    • By Mike48632 16th Jun 19, 10:44 PM
    • 11 Posts
    • 2 Thanks
    Mike48632
    Would extending the mortgage term, while remaining on a repayment basis. Free up sufficient cash flow.
    Originally posted by Thrugelmir
    Not on its own but I will ask about the extending the term.

    Ask if they will let you change the tracker to IO.

    That would get part way to your goal(freeing up cashflow) without penalty.
    Might have to give up a great rate though.
    Originally posted by getmore4less
    I've decided to leave the tracker alone - I don't want to give up base + 0.29% for the whole term (another 19 years)

    10y fix with school fees on the horizon might not have been the best move.

    That raye is looking high these days with 2.4% 10y fixes available.
    Originally posted by getmore4less
    It is looking high, but at the time it wasn't! I thought long and hard before doing it, in the expectation that rates couldn't go any lower. I don't regret it even though...

    I think I'm going to pay the ERC (over £8k), and go for a 2 year fix at 1.59% with a fee of £299 (1.44% is available but with a £999 fee), and switch to IO. It will improve my monthly cash flow considerably. I considered whether I should ask about adding the ERC to the loan, but I think I'm going to pay it.

    If I do the above, as well as improving my cash flow by a large amount, I'll save a lot in interest (over the 6 years remaining of the 10 yr fix). If we assume that rates will stay where they are now for the next 4 years (so I can get the same fixes in 2 years and 4 years from now) and if I continued paying cap and interest, then even after paying the ERC I'd only be worse off over the 6 years by £1,800 compared to remaining on the 10 year fix.

    Thanks for all your suggestions.
    • getmore4less
    • By getmore4less 17th Jun 19, 2:29 AM
    • 37,363 Posts
    • 23,054 Thanks
    getmore4less
    If it is cashflow you want then throwing £8K away is counter to that and you can get more than 1.59% interest on that.

    If you have not use your ERC free allowance use the £8k to pay a bit off first then add any remaining ERC back on if allowed, saves £480.

    If you have enough cash pay the full ERC free bit first then borrow more on the new mortgage to replenish the cash.

    Over 6years
    19y term
    £139,000 3.14% £810pm £103,692 interest £23,012
    i/o
    £139,299 1.59% £185pm £139,267 interest £13,288 (-£9.7k)
    if the ERC is 6%
    £147,639 1.59% £196pm £147,610 interest £14,084 (-£8.9k)

    if rates don't rise you cover the fees over the 6 years but have delayed the capital.

    if you can keep the rates and still want to finish in 13y
    £139,267 1.59% £989pm interest £14,981
    £147,610 1.59% £1048pm interest £15,878
    or if you had carried on
    £103,692 1.59% £736 interest £11,154
    • Kentish Dave
    • By Kentish Dave 17th Jun 19, 6:28 AM
    • 806 Posts
    • 1,492 Thanks
    Kentish Dave
    I’ve a lot of friends who go down the private schooling route, and it turns out always to far more expensive than the fees alone suggest. Trips, uniforms, activities etc all add up.

    I’ll be using state schools for mine*, and don’t envy you the costs to come.

    (*After of course doing the middle class thing of moving somewhere with excellent grammar schools.)
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