Has anyone managed to get an interest only mortgage recently?!

FoamyBanana · 2021-12-19T12:48:26+00:00

Our mortgage is coming up for renewal and really keen to get an interest only deal to give us some breathing space (tricky few years work wise due to covid, have both got new jobs etc but don't love them and would like to find new ones!) We have a combined annual income of around 70k pre tax and mortgage of £200k remaining on a house worth around £975k with 16 years to go. Planning to sell at the end of the term anyway as lots of equity and it will be too big once the kids have left (next couple of years I'd imagine) so repayment vehicle would be the sale of the property. Would also be likely to go back to repayment in a few years when things are a little more settled with covid (optimistic!!) Asked the mortgage advisor but had a really confusing response that I didn't really understand and just wondered if anyone else had done this recently? Was it tricky to find a lender? Would be ever so grateful if anyone could share their experience?

Winebottle · 20/12/2021 15:40

I had a similar experience with mortgage advisers. They just didn't seem to understand why someone would want interest only. I know that if we don't pay off the principal, they are not going to forgive it at the end of the term and I know there is going to be more interest to pay, that is how debt works.

We couldn't get interest only on a mainstream deal. We did get quotes but the cheapest was +0.75% above the cheapest repayment deal. We decided that wasn't worth it so opted for repayment.

BarbaraofSeville · 21/12/2021 04:48

If you can't find something, or the interest rate period makes it too expensive, could you extend the term on a repayment mortgage to reduce the amount you pay?Depending on your age though.

Another option, as you have lot of equity and don't appear to be stretching affordability would be to borrow more than £200k and use the extra money to supplement your income for a couple of years. Might not work out any more expensive as you'll get a standard interest rate and you can park the money in a savings account and earn a little bit of interest in the meantime.

CruellaDeVilla · 21/12/2021 04:53

Some lenders do accept sale of property as the repayment vehicle , Santander definitely do

You have good equity & LTV so it should be ok. Don’t mention selling or they won’t accept interest only

Don’t mention changing jobs or any struggling, they will only let you on on interest only if you’re not struggling

They need to tick their boxes so answer the questions you’re asked and don’t elaborate

unidentia · 21/12/2021 05:26

Had one with First Direct.
Gave pension lump sum as repayment vehicle as would be 55+ at end of term.
Low LTV.

They explained several times in excruciating detail to make sure we understood that an IO mortgage meant we weren't paying the mortgage off. We had to then sign in blood to that effect. Guess to avoid future misselling accusations.

BarbaraofSeville · 21/12/2021 09:33

They explained several times in excruciating detail to make sure we understood that an IO mortgage meant we weren't paying the mortgage off. We had to then sign in blood to that effect. Guess to avoid future misselling accusations

There have been several 'sad faces in the tabloids' stories, and threads on here and no doubt other forums about people expressing surprise and disappointment that they still owe the original amount borrowed at the end of the interest only mortgage term. Because there are people who don't understand what the words 'interest only' mean in this context.

Original poster

FoamyBanana · 21/12/2021 10:53

Thanks so much for the responses. We are with Santander already so good to know they accept sale of the property as a payment vehicle. I will also have a lump sum from my pension - hadn't thought about that actually so will mention that too. Wouldn't be the whole amount, but about 75k I think so a significant chunk.

Can't extend the term as DH quite a bit older than me so they won't extend past his retirement date.

We could afford the repayment but interest only would actually give us a totally different quality of life for a few years. Am torn between 'pay off the debt' and 'live for today!!' As we have enough equity to buy somewhere smaller on retirement I'm just thinking I'd rather be able to fund the kids uni costs, go on holiday occasionally and not stress about money for a while! What is the point of paying off a mortgage on a big house we don't intend to stay in long term at the expense of very little money for enjoying life until we retire!

I dunno, I need a grown up to sort all this stuff out for me and decide the best plans of action!

OP posts:

VivaVegas · 21/12/2021 10:58

I remortgaged with Santander last year when I went through a divorce last year and bought my ex out.

It all happened during lockdown and I had taken a paycut due to covid.

I do actually make my full repayment with them via overpayments but this gives me breathing space as you call it should I need it.

Original poster

FoamyBanana · 21/12/2021 15:41

Ooh, that's encouraging VivaVegas! Yes, think we'd look at overpaying as an option. Will just have to see what they say in Jan when we submit the million pieces of paperwork that the mortgage advisor needs.

When I bought my first house in the 90's I'm pretty sure I just wandered into the bank with a single payslip and they just offered me a giant mortgage on the spot. Obviously I realise this had dreadful repercussions long term for a lot of people but it does feel it's gone rather far in the other direction!

OP posts:

Alwayscheerful · 21/12/2021 19:31

Interest only mortgages are still available to high net worth individuals.
Barclays do underwrite interest only mortgages if you can demonstrate how you would repay the mortgage at the end of term. Selling the house is not an acceptable repayment method.

Slayduggee · 21/12/2021 21:07

I would suggest you find a good mortgage broker that knows the interest only market well. Basically, interest only mortgages (apart from BTL) almost vanished when the financial crisis happen. The lenders that offer them for residential mortgages will all have different criteria so a good broker would do all the research for you.

JaffavsCookie · 21/12/2021 21:13

But, and it’s a big but OP, don’t you want your grown up kids to visit you.
If your plan is to downsize enough to free up the mortgage principle then presumably that means a much smaller house. We have found as our kids grow up, get partners and possibly/ hopefully grandkids we need more space, not less.

Turmerictolly · 21/12/2021 21:16

Money Saving Expert Mortgage forum has lots of brokers on who can offer advice.

ForensicAccountant · 22/12/2021 23:34

Interest only mortgages are available subject to strict criteria. There are lenders that will accept selling the home as a repayment vehicle, but they will require a minimum income level which you may not have. You should be fine with the equity you have for most lenders that still offer interest only. Interest only deals are generally more expensive than repayment interest mortgages. If you get an interest only mortgage, the broker should also show you the illustration on a repayment basis and explain to you exactly how much more it will cost you over the term.

AuntyBumBum · 23/12/2021 01:44

@FoamyBanana

Thanks so much for the responses. We are with Santander already so good to know they accept sale of the property as a payment vehicle. I will also have a lump sum from my pension - hadn't thought about that actually so will mention that too. Wouldn't be the whole amount, but about 75k I think so a significant chunk.

Can't extend the term as DH quite a bit older than me so they won't extend past his retirement date.

We could afford the repayment but interest only would actually give us a totally different quality of life for a few years. Am torn between 'pay off the debt' and 'live for today!!' As we have enough equity to buy somewhere smaller on retirement I'm just thinking I'd rather be able to fund the kids uni costs, go on holiday occasionally and not stress about money for a while! What is the point of paying off a mortgage on a big house we don't intend to stay in long term at the expense of very little money for enjoying life until we retire!

I dunno, I need a grown up to sort all this stuff out for me and decide the best plans of action!

Yes, really agree with your logic here. If you're planning to realise the built-up equity later in life anyway by downsizing, then a repayment mortgage is just enforced saving, meaning you'll have more equity to be released later. But you may well prefer to be spending it in your family in the here and now.

I think interest-only mortgages are a very under-valued useful tool, people just need to understand them (and it's really not that hard).

VivaVegas · 23/12/2021 13:24

To add, I had an offer on repayment but when covid came out of the blue and I was worried about affordability due to a very unexpected paycut, my broker suggested I change it to interest only. I hadn't thought of it, didn't even realise they still did them.

My offer was changed to interest only, my fixed rate deal remained the same and I didn't have to provide anything by way of how I would pay the debt off. I do have less than 50% loan to value though but it sounds as though you do too.

It's given me so much more flexibility and security as a solo homeowner.

delilahbucket · 26/12/2021 20:23

Santander do accept downsizing as a repayment method, however if you are already on a repayment with them already, not only will you need to reapply for the mortgage, it will only be done under strict criteria. Naturally they will want to know why you have been happy on repayment all these years and suddenly things have changed. Any hint of financial difficulty and you're not going to get the outcome you want.