Advisers call for IO shortfall equity release

Sarah Davidson

July 27, 2015

The firm’s quarterly research into adviser views found 43% want to see more innovation on plans suitable for interest-only customers ahead of 37% who want to see rate cuts to encourage more customers.

The demand for interest-only innovation is driven by customer experience – Bower research shows the average adviser has 21% of over-55s clients who are still paying mortgages and around half (48%) of them have interest-only deals.

The average does not tell the whole story – one in six advisers surveyed said 40% or more of over-55s have not paid off mortgages and half of Bower’s adviser team report that 50% or more of their over-55s clients are on interest-only deals.

The Financial Conduct Authority estimates that between 2017 and 2020 around 120,000 interest-only customers aged 65-plus will have to repay loans and are estimated to have loans-to-value of around 75% – on an average house price of around £180,000 that implies a debt of £45,000.

What’s more, over the next 30 years, the FCA has calculated that there are 2.6 million interest-only mortgages due for repayment and nearly half (48%) of all borrowers are underestimating their shortfall.

Andrea Rozario, chief corporate officer at Bower Retirement Services, said: “Equity release lenders have launched a range of plans suitable for people facing interest-only shortfalls, but it is clear that advisers want to see more choice.

“It can make sense to roll over an interest-only mortgage into a lifetime mortgage and particularly so when customers do not want to or cannot move home and are struggling to find the capital to meet their shortfall.

“The equity release market is seeing strong growth but needs to respond with solutions tailored to what customers and advisers want and that clearly is interest-only plans for some.”

Bower’s research shows advisers are expecting more competition in the equity release market this year.

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