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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.

Help to Buy ISA announced

Chancellor George Osborne was about to close his Budget address, when he announced a new scheme to help would-be first-time buyers to save for a deposit.

The Help to Buy ISA allows would be buyers to save up to £200 a month, with the Government adding a further £50. This means that if the person saves the maximum allowed in a Help to Buy ISA – £12,000 – the Government will top it up to a maximum of £3,000 tax-free.

Another benefit is, the accounts are assigned to each person, rather than per house, meaning a couple buying together could receive up to £6,000 from the Government.

The product will be available for four years from the Autumn, but there is no time limit on filling up the ISA – this is ideal if you cannot set aside the maximum amount each month.

This initiative has been received warmly by the industry, and it is thought that the new product could boost demand among would-be homeowners.

As with most things, the true effects are likely to be determined by where home seekers are looking to buy – for example the £3,000 bonus will not go as far if the buyer is purchasing in London as it would if purchasing elsewhere in the country.

While the benefits of the scheme are obvious, without a substantial increase in the production of new homes, this is likely to act as another factor pushing up house prices.

The Government has promised an additional 275,000 homes by 2020, but this will still not be enough to stem price rises.

For more help and advice please do not hesitate to contact us at Hoskin Mortgages.