A lot of lenders are currently exploring the potential to solve the interest-only problem faced by many borrowers and lending into retirement. This has become a more pressing issue as Office for National Statistics data predicts that by 2020 a third of workers are expected to be over 50, so the demand for a lending solution will become ever more pressing.
What is harder for lenders is qualifying what ‘lending into retirement’ means. Not only is the retirement age getting later, but many people work for much longer now; some will be self-employed, some non-executive directors, while others will don the orange jacket and take a job in B&Q or as a taxi driver in order either to keep working or to help make ends meet. The challenge is, how does a lender predict this when they are underwriting a mortgage? It is becoming ever more pressing that a solution is found to this.
The biggest reasons for the problem are the affordability rules in the Mortgage Market Review, which has created the issue both with lending into retirement and interest only. This has dictated that people need to be able to afford mortgage repayments on a capital and interest basis even into retirement, whereas many people may be able to afford only the interest on their mortgage once they have retired.
We really need some easing of criteria. Why shouldn’t someone stay in their house if they can afford the interest but not the capital? It would be better to have a solution where lenders offer interest only for life and the capital could then be paid off on death or sale of the property. After all, what is the alternative? That someone sells the house to pay off their mortgage and then has to rent for life? It would be far better to pay interest only for life instead, and would better meet the government’s stated aim of having more owner-occupiers rather than fuelling the buy-to-let boom still further.
While of course it would be better if everyone with an interest-only loan also had an adequate repayment vehicle, but the truth is that many people took out an interest-only mortgage without this being a necessity. Therefore they should be able to continue living in the property on an interest-only basis as long as they continue to meet all the payments.
