Data from UK Finance shows that 60,000 interest-only mortgages will reach maturity by 2027, with a combined value of around £9bn.
The majority of these borrowers have a loan to value (LTV) of less than 50%, and for those over 55, they have the opportunity to turn to Financial Conduct Authority (FCA)-recommended lifetime mortgages and retirement interest-only (RIO) products. However, this is unbeknownst to many.
Consequences of not knowing their options
Air warned that borrowers may draw down pension assets to clear their mortgage balance, potentially triggering tax liabilities.
In turn, it could mean crystallising investment losses at the wrong time and reducing the pot that may be used to purchase an annuity and secure guaranteed retirement income for life.
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It also suggested that others may pursue a standard repayment mortgage where full monthly capital repayments place unnecessary strain on disposable income.
It further warned that some may end up selling a home that they could have kept.
Advisers’ responsibility to those coming off interest-only mortgages
Air said the FCA placed an expectation on the industry to ensure customers are made aware of the full range of options available to them.
Later life borrowers should be informed of the benefits of modern lifetime mortgages. These include rates fixed for life, embedded protections including certainty of tenure and a no-negative-equity guarantee.
If advised appropriately, later life borrowers have a clear way to remain in their home, manage cash flow and preserve financial flexibility in later life.
Will Hale, CEO of Air, said: “These are real people facing what can be a worrying deadline, and our industry has a collective responsibility to make sure they understand all their options.
“Advisers, lenders and sourcing platforms all have a role to play in ensuring later life lending is part of the conversation wherever it is relevant.
“A borrower with significant equity in their home and an IO mortgage maturing in the next two years has more options than they probably realise. But they will only benefit from those options if the right conversations happen at the right time.
“The data points to a large group of consumers who stand to gain from better joined-up thinking across the industry, and that is exactly what we should be focused on delivering.”
