Simon Chalk, chairman of the Society of Equity Release Advisers (SERA), said the onus being placed on lenders by the FSA to ensure interest-only borrowers have realistic plans in place to repay the capital will mean customers will soon face questions over how they intend to pay off their loan.
Chalk said: “This will inevitably mean that many borrowers close to retirement, who have not already established a repayment vehicle, will find that they have left it too late and simply cannot afford to convert to a repayment mortgage or increase the term
“For many of these borrowers, switching to a lifetime mortgage or home reversion plan will be their only saviour, yet the vast majority of lenders do not offer such products and many will have too large a loan to switch.”
However, Chalk said that a serious concern was the aggressive stance some lenders are taking when it becomes clear an interest-only borrower is unable to repay the capital at the end of the term.
He said: “We have started receiving enquiries from IFAs and solicitors who have clients threatened with repossession if their mortgages are not paid off in full.
“The logical step would be for IFAs and lenders without an equity release service, to form an allegiance with a firm of qualified equity release specialists; not only to protect their own interests, but to ensure their customers are receiving the best advice.”
