Older borrowers with interest-only loans using equity release to clear mortgage trebles
The number of borrowers using equity release as a means of paying off an interest-only mortgage has trebled.
Lenders have tightened up on their lending into retirement criteria over the past 2 years, possibly in prospect of the Mortgage Market Review launched last April.
It has been estimated by Age Partnership that the number of people to have used an equity release plan to pay off their interest only mortgage has risen by 193%. The study showed that 229 people used an equity release plan in April 2015 whereas only 78 people did in April 2014. It was also estimated by the retirement provider that over the past 12 months a total of 2246 older borrowers have used equity release to pay off an interest-only mortgage.
Age Partnership has stated that the average interest-only mortgage held was £61,856 in April 2015 but customers actually released an average of £73,980.
It has been estimated by the FCA that 260,000 of the 2.6 million outstanding interest-only mortgages do not have a repayment strategy in place to repay the capital at the end of the term.
The affordability criteria introduced by lenders as a consequence of the Mortgage Market Review has made the interest only time-bomb all the more devastating meaning that few older home owners have the opportunity to set up a new strategy to clear their debt. It is now harder for lots of home owners to clear their interest only debt whilst still remaining in their home. In the worst cases, retirees are being forced to sell their homes and move to a smaller property to pay down their debt. Understandably, this is a stressful outcome which often causes unnecessary upset later in life.
Borrowers with interest-only deals should not be forced to abandon their life-long homes.