Mortgage company insisting we take our mortgage over 25 years

[BonnieBlueButler]

I've been left a little confused by a meeting with our mortgage broker today and wonder if anyone can shed any light.

We are buying a new house and selling our old house. We are porting part of our mortgage which currently has a term of 14 years. The rest of our mortgage will be new and for the amount £125 000. We have a £50 000 deposit. Our joint earnings are around £60 000. Other debts are a car loan and a small amount on an interest free credit card.

We wanted to take the new part of our mortgage over 20 years and once the first part is paid off in 14 years, to overpay and get it paid off quicker too. All seemed fine but at the meeting tonight, our broker insisted that Barclays would only allow us to have the second part of our fixed rate (5 year) mortgage over 25 years for affordability reasons. We had done the affordability check last time we met with no issues at all. He couldn't really give us a straight answer as to why we couldn't have the term we wanted other than saying our 2 young children will have made a big difference.

He then said that on the day we move into the house, we can call and request that our term be reduced to 20 years and that this won't be a problem. So I'm confused as to why it is a problem now. Does anyone have any ideas? I'm worried that if on paper we can't afford this move, we will leave ourselves with future problems (although the figures really didn't look too bad at all to me). The difference in repayments between 25 and 20 years is about £70 a month.

Thanks

Can you overpay by that amount without penalty?

Most mortgages allow 10% overpayments without penalty, so you could just take the 25 year term, overpay, and it will be paid off in 20 years or less.

Also has the advantage that you can reduce your payment down to the 25 year amount if you need to.

That's true. We can overpay and probably will but just wondered the reasons why we seem to have failed the affordability test over 25 years. I was surprised as originally we were cleared to borrow loads more than we asked for.

He's also worked our insurance out over the 20 years as we said we would definitely reduce the term on completion. It's £150 a month! Is this loads? It is life, critical illness and income protection joint policies. I'm 39, husband 42, both non smokers. Seemed a lot to me but he said the critical illness policy was the expensive one.

Thanks for the advice.

£150 a month for insurance
WTF
that is utterly barking.

Do neither of you have any sort of other life assurance / employer pension / other sources of income.

That sounds like a new version of PPI

How much is the critical illness for? It's dear because it covers both of you. DH has it but I didn't bother as I get 6months full pay and 6months half pay if I'm sick. He also only got it to cover his share of mortgage, not the full amount so it's much cheaper

150 for life insurance doesn't sound much tbh, not at that age.
when we remortgaged last year were were not allowed to shorten the duration, but due to the ltv being better and lower interest the rate is much cheaper, so we keep paying the old rate.

Critical illness pays off the mortgage if either of us get critically ill. I'd feel very uncomfortable without it even though I have a good sick pay package at work. This kicks in after my sick pay runs out. I'm thinking about the what ifs. What if I couldn't work again? I don't know if we need all of this insurance though. Is it overkill?

I've never had Critical Illness cover

My life insurance costs £25 a month for me and £26 for DH (separate policies are always a better deal)

If your employer pays decent sick pay or you have a pension I'm not sure the point of such insurance.

Why not put the £150 a month into an ISA
then if you do not need the cover you still have the cash
and if you do need the cover then empty the savings account

We’ve just moved and ended up with a large life insurance and critical illness cover, we didn’t get payment protection cover though. We seemed to end up with lots of different policies which has confused us no end. I think I’ve worked it out now and know which we need to cancel, however I agree with you about critical illness. There are multiple different illnesses which would make it impossible to work but you would still have a mortgage to pay. I personally feel life insurance on it’s own is not enough and would suggest you keep the critical illness cover. We’re also overpaying the mortgage so we have a 6 month reserve in there should either of us lose our jobs. It would give us a bit of breathing space around the mortgage.

To anybody comparing income protection to PPI: There's a massive difference between payment protection (accident & sickness) and income protection. Accident & sickness is generally cheaper, because it doesn't cover pre-existing conditions, pays out just your mortgage payment for a fixed term (say 6/12/24 months) then that's the end of it. Income protection is underwritten at application so it's much more likely to pay out, it will pay up to 60% of your annual income tax-free per year so you can insure for living expenses as well as the mortgage payment, and will pay out either until you're well enough to return to work or the end of the policy (whichever is soonest).

But I still stand by my point that many such insurances would be better handled by "self insuring"

I've spent the evening on comparison sites and the quote from our mortgage broker for a joint life assurance and critical illness policy (without the income protection) was £80 a month, I am now getting quotes of £45-50 for what seems to be the same thing! Companies like Legal and General who we already have policies with.

Am I able to organise all of this myself, separate from my mortgage broker? I have emailed him and asked him not to actually organise the policies yet.

Pretty sure they re not allowed to lock you in to their provider

Yes, you can do this yourself.

Talkin - I would worry I wouldn’t be able to save enough if something happened in the nearish future. It feels too risky to me.

I'd check other companies for critical illness & life assurance and check the small print.
Critical illness cover won't pay unless your nearly dead...I was retIred and medically unfit for work by more than 3 Dr's but 1 word wrong barclays wouldn't pay out.
Get LI to pay off the loan buto pay the years down quickly with an overall payment x

Now that the parasitic lenders can't use their old scams of liar loans etc they have to manipulate the new rules on affordability to screw borrowers by insisting that they take unnecessarily long repayment terms, all under the guise of being "cautious" and "responsible" lenders with only the borrowers best interests at heart... with the happy outcome (for the bank) that they get more in interest.

I did wonder about that sall. Longer term means more interest. Thought I was just being cynical.

We don't even have life insurance because both our employers pay 4x salary for death in service which would pay off over half the mortgage. Mortgages are ridiculous - there's some kind of alchemy in those equations, I'm sure.

Our last mortgage (paid off early last year 🎉 ) allowed us to overpay £500 a month, and each overpayment reduced the term (rather than the monthly payments). This gives you the best of both worlds, overlay whenever you can but don’t during expensive months (holidays, Christmas).

Honestly OP I would speak to a few mortgage companies in person now you've seen that you can get a better deal on insurances if you do it yourself.

PPI and Income protection are not the same thing. Please don't confuse the two.

Another subject you often see people say "just put the money in the bank" is with Pet insurance- my dog is 4 and I would have been massively better off so far had I done that, as ive never claimed.. but if my dog causes a road accident or needs a 5k surgery I'm fairly sure I will be glad of the insurance.

I know people who have saved money but having a large sum assured of life insurance and a lower amount of CIC.. enough for a year or two off work say. Not "ideal" but better than nothing if its more affordable.

The mortgage thing doesn't sound right. have you considered, if you're not tied in with your current mortgage provider, to try a different provider. We moved from Nationwide to Yorkshire whose rates have been fantastic. and when we needed extra, we could do it over a shorter period. Barclays don't sound very flexible.

you need to be very careful woth the insurance as you need to be virtually dead to claim on the critical illness policies.

£150 a month for the insurance does sound a lot. Personally I would never accept the quote from the mortgage broker, he'll be getting a no doubt large commission on arranging that insurance. I'd say it's almost certain you can get the same cover yourself more cheaply

I would speak to Barclays directly and see what they say. The whole "just call them when you move in and reduce the term" sounds weird to me. Brokers tend to be a bit fast and loose with the facts and go by what they've heard has happened before ...

The broker is angling this to maximise his commission.If he gets you to sign for a product which gives him additional commission but is wrong for you, he still keeps the commission if you change the deal after moving in. I wouldn't trust him.

Do you really need a broker? You can do the research yourself on moneysupermarket and apply direct. Brokers can sometimes have access to slightly more favourable rates but the difference is minor, and not worth the risk of being railroaded into the wrong deal.