Interest Only mortgage availabiltiy? Repayment Vehicle?

[MrDecadent]

Hi,

We’re starting a family and I’d like to switch to an interest only mortgage that allows overpayments for added flexibility during this expensive time, not forgetting to mention finishing off house renovations before the birth in September too. I have always made overpayments to my existing repayment mortgage and plan to do the same with this one however I’ve found a few online but they all seem to want repayment plans – what’s this, how can I prove I’m going to put away £0-1500 a month depending on circumstances?

If there are any mortgage advisors about it would be great to hear your expert knowledge. Current mortgage is the One Account, while it has been great at allowing me to have access to instant funds to my facility level for renovations I’d rather have a fixed rate product for the next 3/5 years to plan ahead.

Failing the interest only option I’d consider fixed rate repayment, best I can find @ 75% equity is 3yr Yorkshire @ 2.59% with £995 fees. Happy to go through someone on here if they can earn themselves a bit of commission 


Cheers
Matt

[paulrockliffe]

My mortgage requires a repayment plan. The plan is as yours is; run a surplus and resisit the urge to spend it on fast cars, coke and hookers.

We just presented our budget to include the interest cost of the mortgage and demonstrated that the surplus was enoguh to clear a 25 year mortgage in a much shorter timeframe and that was good enough.

Our mortgage is an offset mortgage, though that shouldn't make a difference.

[Sarnie]

MrDecadent said:

Hi,

We’re starting a family and I’d like to switch to an interest only mortgage that allows overpayments for added flexibility during this expensive time, not forgetting to mention finishing off house renovations before the birth in September too. I have always made overpayments to my existing repayment mortgage and plan to do the same with this one however I’ve found a few online but they all seem to want repayment plans – what’s this, how can I prove I’m going to put away £0-1500 a month depending on circumstances?

If there are any mortgage advisors about it would be great to hear your expert knowledge. Current mortgage is the One Account, while it has been great at allowing me to have access to instant funds to my facility level for renovations I’d rather have a fixed rate product for the next 3/5 years to plan ahead.

Failing the interest only option I’d consider fixed rate repayment, best I can find @ 75% equity is 3yr Yorkshire @ 2.59% with £995 fees. Happy to go through someone on here if they can earn themselves a bit of commission 


Cheers
Matt

Hi Matt,

I'm a Mortgage Broker and can help you with this.

Interest Only mortgages have come under intense scrutiny from the FSA over the last few years and criteria has tightened massively in this area. Gone are the days when you could get a 90% LTV Interest Only mortgage and just tell the lender that you would over pay the mortgage. To reflect this Nationwide no longer accept Interest Only mortgages at all whilst Santander & Woolwich have reduced the max LTV down to 50%.

Most lenders will now require an actual repayment vehicle to be in place such as an ISA, Pension, Endowment etc. Some will allow 'sale of the property' as the repayment plan but there is strict criteria around this.

At 75% LTV you are going to need an actual repayment vehicle in place. Simply stating 'I'm going to overpay' isn't acceptable anymore (offset mortgages are different).

If you need any help please feel free to PM me

[MrDecadent]

Thanks both, Sarnie I'll send you a mail
Matt

[Cupramax]

Out of interest how does overpayment on an interest only work? Aren't you just turning into a repayment of kinds by doing that?

[Sarnie]

Cupramax said:

Out of interest how does overpayment on an interest only work? Aren't you just turning into a repayment of kinds by doing that?

Essentially yes, but the difference is that the over payment is optional meaning you are only committed to the Interest Only payment rather than both as you would with a repayment mortgage.

[paulrockliffe]

Sarnie, do you know why offset mortgages are treated differently?

Mine has no more obligation to repay the capital than a normal interest-only product, so I'm struggling to see the difference.

[Sarnie]

swerni said:

No one can predict the interest rates but I think most people feel they are going to be static for the next few years.
By fixing, your effectively paying for insurance your are "unlikely" to use.

Incorrect. Your statement may have been true a number of years ago but not today.

There used to be a disparity between tracker and fixed rate products. Trackers started circa 1% lower than the corresponding fixed rate to tempt you in with the lower rate but with the risk that it could increase beyond what you could have fixed at. Due to the uncertainty with rates and the economy, there is little appetite for tracker products, everyone wants to fix 'just incase'. With rates so low, tracker products can't possible still be 1% below their corresponding fixed rate products and are therefore in line rather than blow the available fixed rates. Therefore hardly anyone is taking a tracker product at the moment when they can fix at pretty much the same rate. Why choose a tracker that 'could' go up when you can fix it at the same rate? Therefore there is no 'insurance' being paid on current products.

[Sarnie]

swerni said:

Stop getting sulky with me.

I said I had a tracker, that was a passing comment, nothing more.

What's cheaper ( in general terms) the SVR or the 3 year fixed deals?

Who's getting sulky with you?

Given that the lowest current SVR is 3.99% then currently, 3 year fixed rates are cheaper at 85% LTV or lower.

[westberks]

swerni said:

Stop getting sulky with me.

I said I had a tracker, that was a passing comment, nothing more.

What's cheaper ( in general terms) the SVR or the 3 year fixed deals?

since when is a detailed response full of accurate information 'sulky'?

your tracker may have been taken 5 years ago when 1% over BBR was available, that isn't a reflection of the current market, which Sarnie explained very well. Also comparing a tracker with SVR is pointless as most lenders run both; in some cases several of one and a couple of the other. Someone starting afresh at the moment has absolutely nothing in common with anyone who arranged their mortgage as recently as a couple of years ago; the market has moved (mostly for the worse) that much.

if you have an offset tracker you might be paying as little as 1% in total; most lenders have withdrawn from the offset market and the margins are now somewhere upwards of 2.5% over BBR for a full term deal; so no real value for most clients. The cheapest tracker on my book is around .11% over BBR, when we did that for the client it was a temporary debt dump for a mate when BBR was 5.75% with the intention of repackaging within a year; he sends me a thank you email every month when his payment goes out! That lender isn't even in the market anymore.

Edited by westberks on Wednesday 13th March 05:02