Interest-only mortgage holders are fuelling growth in the equity release sector, Key Retirement technical director Dean Mirfin said today.
Mirfin, who was speaking at FSE Cardiff, estimated that in the next four to five years around 40,000 interest-only loans will mature per year.
He therefore urged advisers to engage with interest-only mortgage holders.
He said: “Large numbers are unable to borrow because they won’t meet affordability criteria. A major usage for equity release is to repay the mortgage.
“In 2011 17% of our customers were using the money to repay an outstanding mortgage and this has now gone up to 21%.”
He reckoned hybrid equity release products – with a rollup and serviceable interest element – will be an eventual solution.
He explained: “The problem with interest-only borrowers is getting the loan high enough for them to pay off the mortgage.
“How can we get a higher LTV? Here is where we are close to products which offer serviceable interest across the entire life of the loan.
“In the future we should expect to see partnerships between different lenders with one funding the roll-up, and one funding the serviceable interest element, but for the customer this is just one loan.
“So we could have a 70 year-old borrowing 50% but only servicing 10% of it.”
This year will be the first of three waves of interest-only customers coming to the end of the terms according to Mirfin.
He said: “This year is the start of the first big wave. The second wave will come in seven to eight years’ time, and the third in about 2030.
“However, the problem for the first wave is that they have little time to solve this.”
He added: “The opportunity is vast, especially for clients who do want to service some of their interest.
“If you don’t advise, then refer. There is much more flexibility than ever before.
“If you take one thing away from this, then it’s to make sure you monetise the value of the home to the client; show them what it’s worth to them in cash terms without them having to sell.”
FSE Cardiff was taking place at SSE Swalec Stadium at Sofia Gardens in the Welsh capital first time.