In the near future approximately 1.3 million interest-only mortgage holders will not have the means to repay their loans and those entering into retirement may further struggle to borrow money to cover any short comings. However, property itself could provide the perfect solution without having to remortgage, sell up, or risk repossession.

The interest only mortgage headache

Over the next eight years approximately 1.3 million interest-only mortgage holders will not have the means to repay their loans at the end of its term. The outstanding balance at the end of each term will vary, but with many choosing to remortgage during the house price boom some will be left with mortgages that far exceed the price they paid for the house itself.  It’s not all doom and gloom though; interest-only mortgages typically allowed people to get on the property ladder at a time when they otherwise wouldn't have been able to afford to. 

According to the Nationwide House Price Index, a property mortgaged for 25 years will have grown in value by 213% since inception in 1989. Although their endowments might have failed them, their property investment certainly hasn't! Those who resisted the temptation to consistently remortgage will now be sitting on a large amount of equity, thanks in part to the interest-only mortgage they were allowed to take out.

While sitting on a large amount of gained equity is a nice situation to be in, the bigger lenders' attitude towards lending into retirement has created a problem. Homeowners with no savings face having to sell their properties because they can't pay the outstanding mortgage, even though they have tens or even hundreds of thousands of pounds of equity in their properties. 

We have seen hundreds of people whose lifetime banking source now identifies them as a current account and nothing more. This attitude is exacerbated by the interest-only time bomb, with the 55+ having to approach mortgage providers to renegotiate terms.

On the face of it, a retired person looks to be a safe bet for a mortgage: an income from an annuity guaranteed regularly by the largest insurance companies worldwide; equity in their property; a propensity to be life insured; and a long credit history often with the same lending institution. But lending into retirement has dried up. This often means switching to a capital repayment mortgage, offered on such short terms so as to make it completely unaffordable. We have heard of repayment terms equaling £2500 a month over four years being bandied about.

For many, repayment using traditional lending markets are unaffordable, impractical, and sometimes offensive. However, with equity abundance being the common denominator in these time bomb cases the equity release market is actively lending and providing a solution to the real repossession risks faced by thousands.  

 

The solution...

An interest-only equity release mortgage is available that doesn't discriminate against the customer's age. It has a useful feature that allows it to convert to a roll-up mortgage if and when the customer decides they don't want to make monthly repayments any more. It is a very useful product for those who are facing the time bomb issue, aren't ready to stop making mortgage payments altogether, but can't borrow elsewhere. If you don’t want to make interest payments, you can choose a regular, roll-up equity release mortgage where nothing is paid back until you eventually sell the house or pass it on to heirs.

We have put together a guide to using equity release to clear your interest only mortgage which you can request using the calculator below. The calculator will also tell you how much you are eligible to release. You can then seen if that is enough to clear your mortgage.

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