Interest Only Question

Interest Only Question

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Labbetts

Original Poster:

829 posts

138 months

Friday 25th September 2015
quotequote all
I'm on a Barclays +0.18% Lifetime tracker (interest only) and looking for a top up.
Since taking out the mortgage my circumstances have changed, i've gone from being well salaried to running my own business.

Apparently i'm still within my limits for borrowing more, equity is great (30-40% LTV) but paranoia is setting in around the affordability questions, and whether they'll use this application as an excuse to flip my current agreement over to repayment, or even worse, a deal that isn't anywhere near as good.

Reason being, i've got the sense they've begrudged my current deal for many years. When the markets collapsed they became insanely cheap. Good for me, but letter after letter kept arriving trying to entice me off that deal with alternative rates, all of which were worse in the long run.

I make small over payments every month, but as i'm working my way up the property ladder i'm not in any hurry to clear this debt (it's cheap) i'd would rather save the cash and pay off in bulk if i had to.

Alternatively, anyone know a good mortgage broker? smile

Sarnie

8,025 posts

208 months

Friday 25th September 2015
quotequote all
Labbetts said:
I'm on a Barclays +0.18% Lifetime tracker (interest only) and looking for a top up.
Since taking out the mortgage my circumstances have changed, i've gone from being well salaried to running my own business.

Apparently i'm still within my limits for borrowing more, equity is great (30-40% LTV) but paranoia is setting in around the affordability questions, and whether they'll use this application as an excuse to flip my current agreement over to repayment, or even worse, a deal that isn't anywhere near as good.

Reason being, i've got the sense they've begrudged my current deal for many years. When the markets collapsed they became insanely cheap. Good for me, but letter after letter kept arriving trying to entice me off that deal with alternative rates, all of which were worse in the long run.

I make small over payments every month, but as i'm working my way up the property ladder i'm not in any hurry to clear this debt (it's cheap) i'd would rather save the cash and pay off in bulk if i had to.

Alternatively, anyone know a good mortgage broker? smile
They can't make you redeem your current rate or make you change to repayment.

However if you want something from them (a further advance) they could request something of you (redeem the current rate) which could force your hand to move away from them if you really need the money.

How long have you been self-employed?

Labbetts

Original Poster:

829 posts

138 months

Friday 25th September 2015
quotequote all
Sarnie said:
They can't make you redeem your current rate or make you change to repayment.

However if you want something from them (a further advance) they could request something of you (redeem the current rate) which could force your hand to move away from them if you really need the money.

How long have you been self-employed?
Business has been going for 3 and a half years chap. Although it's a relatively new company it's in good health.
My concern came about when the first person at Barclays (phone op) said that you needed to earn over £75k to qualify for interest only. Which I do so no worry there.

Made me wonder whether there were other criteria that might force my hand, especially as my circumstances shifted from standard salary to business ownership.

I don't really care if they decline a further payment, providing it doesn't screw my existing agreement in the meantime.

Thanks for the advice BTW. Appreciated.

Sarnie

8,025 posts

208 months

Friday 25th September 2015
quotequote all
Labbetts said:
Sarnie said:
They can't make you redeem your current rate or make you change to repayment.

However if you want something from them (a further advance) they could request something of you (redeem the current rate) which could force your hand to move away from them if you really need the money.

How long have you been self-employed?
Business has been going for 3 and a half years chap. Although it's a relatively new company it's in good health.
My concern came about when the first person at Barclays (phone op) said that you needed to earn over £75k to qualify for interest only. Which I do so no worry there.

Made me wonder whether there were other criteria that might force my hand, especially as my circumstances shifted from standard salary to business ownership.

I don't really care if they decline a further payment, providing it doesn't screw my existing agreement in the meantime.

Thanks for the advice BTW. Appreciated.
No problem!

Here is their IO criteria;

Interest-only mortgages
The maximum loan to value allowed on an interest-only basis is 75%. Where sale of property is used as the repayment vehicle, clients can borrow up to 75% LTV on residential mortgage, however this must be made up of a maximum 50% LTV in interest only. After the interest only element of the lending, customers are required to have £300K of equity in the property.

The maximum term for an interest only mortgage is 25 years and cannot extend into retirement.

There is a minimum income criteria required to be eligible for interest-only borrowing (including part and part borrowing):
Sole application – the applicant must have a gross income of at least £75,000
Joint application – one applicant must have a gross income of at least £75,000
Joint application – where no individual income is over £75,000, joint gross income must be at least £100,000
A customer's gross income will be assessed on the criteria we currently use for income multiples.

Given the importance of the minimum income criteria, and to protect your customers, please ensure that the minimum requirements are met – particularly where a customer is at the margins of income threshold.

Debt consolidation is not allowed for existing or new interest-only borrowing. The only exceptions to this being where an existing customer has a drawn mortgage reserve balance and wants to consolidate this, or where a customer wishes to add an ERC to the balance of the mortgage when remortgaging to us from a competitor.

The Barclays Group requires all customers who take an interest-only mortgage to have in place a repayment plan for their loan on completion of the advance. Unless using sale of property to be mortgaged, we require the repayment vehicle to have been in place for 12 months. The Barclays Group will consider one, or a combination of the following as acceptable repayment plans for interest only mortgages:
An existing endowment policy
An existing stocks & shares ISA
An existing (minimum 12 months) share, unit, or investment trust (professionally managed)
Sale of mortgaged property
Where your client wishes to use any other method of repayment to repay the interest-only amount other than the acceptable repayment plans detailed above, this is not acceptable.

While it will be the customer’s responsibility to maintain the repayment strategy throughout the term of the mortgage, as a responsible lender, it is important for us to ensure all interest-only mortgages are supported by an acceptable repayment strategy which will be sufficient to cover the interest-only mortgage on maturity.

Existing interest only customers

Existing interest only customers wishing to borrow additional funds or port must meet the current lending standards relating to interest only. This includes meeting the minimum income threshold. Existing customers who do not meet current lending standards for interest only would need to switch their repayment type to capital and interest.

Labbetts

Original Poster:

829 posts

138 months

Sunday 27th September 2015
quotequote all
fantastic. Thank you sir.
All makes sense.
Does affordability or business ownership (self employment ) have a big bearing on this? Since the change a few years ago.

Sarnie

8,025 posts

208 months

Sunday 27th September 2015
quotequote all
Labbetts said:
fantastic. Thank you sir.
All makes sense.
Does affordability or business ownership (self employment ) have a big bearing on this? Since the change a few years ago.
Yep, affordability is always now going to be a big issue for lenders...

Labbetts

Original Poster:

829 posts

138 months

Tuesday 29th September 2015
quotequote all
Sarnie said:
Yep, affordability is always now going to be a big issue for lenders...
Sarnie, one last question fella

During these affordability questions they look at the tolerance right? (6.99% with Woolwich) Do they look at where you could make cutbacks to pay that? Or do they require current expenditure to have that kind of buffer.

ie: At the moment i have around £1k spare a month, that could be £2.3k if i was to make several dramatic cutbacks.

Sarnie

8,025 posts

208 months

Tuesday 29th September 2015
quotequote all
Labbetts said:
Sarnie, one last question fella

During these affordability questions they look at the tolerance right? (6.99% with Woolwich) Do they look at where you could make cutbacks to pay that? Or do they require current expenditure to have that kind of buffer.

ie: At the moment i have around £1k spare a month, that could be £2.3k if i was to make several dramatic cutbacks.
They will look at your current situation primarily and then where any changes could plausibly be made. Eg if you were paying £500pm on childcare currently, how likely is it that you could actually drop this amount?

If you are currently spending £500pm on a hobby for example, that is something that you could obviously cut back on immediately without it affecting your life.

Good luck!

Labbetts

Original Poster:

829 posts

138 months

Wednesday 30th September 2015
quotequote all
Sarnie said:
They will look at your current situation primarily and then where any changes could plausibly be made. Eg if you were paying £500pm on childcare currently, how likely is it that you could actually drop this amount?

If you are currently spending £500pm on a hobby for example, that is something that you could obviously cut back on immediately without it affecting your life.

Good luck!
cool. thanks so much. I could claw back £1k easily enough.
Is affordability calculated on current salary?

Sarnie

8,025 posts

208 months

Wednesday 30th September 2015
quotequote all
Labbetts said:
cool. thanks so much. I could claw back £1k easily enough.
Is affordability calculated on current salary?
If you are self employed, it will be an average of your last two to three years figures, as submitted to HMRC smile

Nigel_O

2,859 posts

218 months

Thursday 1st October 2015
quotequote all
Sarnie said:
They can't make you redeem your current rate or make you change to repayment.
I agree on the first point, but I'm not so sure about the second

Lenders are duty-bound to ensure that interest-only borrowers have a robust repayment plan - where such a plan cannot be demonstrated, they have the right to put the account onto a repayment basis

I know this from first-hand experience - I had repayment plans for my offset mortgage with One Account, but they weren't "robust" enough for the lender, so they put me onto a repayment basis. I paid the mortgage off a month later..... rolleyes

Labbetts

Original Poster:

829 posts

138 months

Thursday 1st October 2015
quotequote all
Nigel_O said:
I agree on the first point, but I'm not so sure about the second

Lenders are duty-bound to ensure that interest-only borrowers have a robust repayment plan - where such a plan cannot be demonstrated, they have the right to put the account onto a repayment basis

I know this from first-hand experience - I had repayment plans for my offset mortgage with One Account, but they weren't "robust" enough for the lender, so they put me onto a repayment basis. I paid the mortgage off a month later..... rolleyes
Yep agreed.
I have my house. Mortgage is currently 25% of the value - and equity well exceeds the minimum £300k