Interest only buy to lets - no plan to repay capital at end of term

[Susie2017]

Note- moved from another thread - Brendan

I have my PPR with Pepper who bought it from Danske. It's a tracker. Won't be paid off for approx 12 years. Should I be concerned about tracker rate changing or do they have to stick with orginal terms and conditions?


Also a relative has several interest only investment properties with them. Making all interest payments but properties are in negative equity and in hindsight interest only was a bad idea as they will never be repaid. Full capital amounts remain outstanding with about 7 years to run. Are Pepper/ proteus likely to let the mortgages run their term or are they likely to be in touch before that ? He is worried about his PPR as it is in positive equity on an interest and capital basis. Can they come after it even though the mortgages are not cross charged against family home ?

 

[Brendan Burgess]

You have nothing to worry about yourself. Pepper can't change the terms and conditions. There is a small chance that they might offer you a discount to refinance the mortgage. But with only 12 years left, it is unlikely to be a big discount.

If your relative is paying his interest in full, Pepper will not be in touch with him, unless they want to offer him a deal to pay them off early.

At the end of the term, he will have to sell those properties to repay the loans.

If there is a shortfall, then he will still owe Pepper that money. If he does not pay, they could go to court to get a judgement order against him. If he still does not pay, they could register that as a judgement mortgage on his home. This means that if he sells his house, he would have to pay off the shortfall to Pepper first.

If he is on interest only on a cheap tracker, the rent must be greatly in excess of the interest he is paying. He should start using the surplus and any other savings to build up a fund to pay off the mortgage when the mortgage becomes due.

He could use the surplus to pay off the mortgage on his home. But I think he should organise his finances in such a way that he eliminates or reduces the negative equity on the investment properties.

He should have a chat with Pepper to see if they would offer a discount for early repayment of the investment properties.

Brendan

 

[IdesofMarch]

Most BOS and Leeds Building Society interest only mortgages for both PPR and BTL properties are due to mature between 2020 and 2025 !

 

[Susie2017]

thank you Brendan. On my own PPR my interest rate is 0.99%. Given the chance that interest rates might rise would it be prudent to over pay some of this with savings (over and above say about 6 months expenses in case of illness etc). I read somewhere here that any savings above this amount are probably not necessary and would be more useful if put against the mortgage. I have a small income protection policy which kicks in after 6 months if I get sick and life insurance policy also. No real major expenses on the horizon.


In relation to my relative who has several interest only properties he was wondering if when the interest only period expires in around 7 years, if he continues making the same interest payments to Pepper/Proteus would there be any chance that they might refinance them for a period say 10 years. He will be around 56 at that time. His rents are only ok. He has long term tenants in many so is below market rent across the board. I presume they would only do this on an interest and capital basis, with rates likely to be a lot higher than current trackers ? Will they make him sell them all as he wont have the capital to pay them off in full unless he wins the lotto.