For many people interest-only mortgages have been helpful and recent research by Leeds Building Society has shown that 450,000 interest-only mortgages are on track to be repaid by 2020.
However, there are still a significant number of borrowers who have not set aside the capital in a separate repayment vehicle and simply do not have the ability to repay the outstanding loan.
Their initial intention might have been to downsize when the loan matured, helping them to repay the outstanding capital.
However, that might no longer be their chosen option, or, with a lack of suitable properties, a possible solution.
Town or country?
Legal & General’s Last Time Buyers research found the ideal home for the over-55s was a two-bedroom property, located close to family and friends.
With this emphasis on connectivity, it would suggest many last-time buyers would look to urban areas, rather than downsizing to rural parts of the country.
However, these are the very same properties that many of Britain’s first-time buyers look to when making the first step onto the housing ladder.
Couple that with just 2% of the UK’s housing stock being purpose-built for retirees and the problem grows further.
These customers therefore need another choice.
It is important borrowers explore all potential options for repayment with their financial adviser first, but we believe this conversation should include releasing equity from their home.
For those unable to repay their interest-only mortgage, but not able or not wanting to downsize, this could be a sensible, logical course of action, and this is where advisers have a central role to play.
Whether it’s addressing misnomers about equity release, a simple lack of awareness about the ability to access housing wealth, or just explaining these products to clients, the support and guidance of an adviser can make all the difference.
Lenders should do more
We want to see more intermediaries, more of those already qualified to advise on equity release, talking to their clients about these products – and this must include interest-only customers.
Of course, lenders have a responsibility too.
We intend to continue to push forward more of the types of agreements like ours with Santander which is now a year old, and we want to see other lenders doing the same.
Ultimately, this will provide these customers with more choice when their mortgage reaches maturity, and that can only be a good thing.