Equity release players react to interest only
FCA modelling suggests that nearly half of all interest only loans are unlikely to be paid back in full. Of those half will still owe £50,000 – a significant amount of money for many people to find from existing savings which might have been ear-marked for retirement.
Nigel Waterson, chairman of the Equity Release Council, said: “We welcome the FCA’s findings that the majority of homeowners have a repayment strategy in place for their interest-only mortgage.
“However the reality remains that a number of people still face a decision about how to clear their outstanding balance which can be especially challenging in later life when many people find their finances are already overstretched.
“Equity release can offer the over-55s a practical solution to this dilemma, with equity from their property providing a valuable alternative to downsizing to meet the additional costs of repayment.
“There are a number of equity release products available to homeowners long past the age of 55 – unlike many sources of borrowing which dry up in later life.
“Some of these products also allow people the flexibility to make monthly interest payments rather than allowing it to accrue over time which ultimately helps to protect the wealth tied up in their home.
“In any case it is wise to research these options and speak to a professional advisor in order to decide on the best possible option for the individual situation.”
Dean Mirfin, group director of Key Retirement Solutions, echoed Waterson’s views but was also concerned about waht lies ahead for interest-only customers.
Mirfin said: “The interest-only timebomb is potentially terrifying and could be a slow motion disaster for lenders and borrowers with at least 60,000 borrowers facing capital repayments by 2020 without any means of doing so and another 260,000 facing the same financial crunch over the next 30 years.
“We have for some considerable time been trying to focus both lenders and borrowers alike on the solutions and not the problem.
“It is imperative that all borrowers have access to the right advice to consider thoroughly all of their options before it’s too late.”
Mirfin said lenders must not allow borrowers to bury their heads in the sand anymore and that borrowers should now seek advice in regards to the problems which lie ahead.
He added: “Those most at risk are the over-55s as this is very much a retirement income crisis. But there is time to address the crisis and there are solutions already available ranging from downsizing your home to considering switching to an equity release lifetime mortgage which enables them either to continue paying interest or have interest roll up while escaping the looming repayment date.
“Equity release specialist lender More2life only recently called on lenders to engage with their customers now to identify those who need help and advice now and to look to solutions which already exist.
“Borrowers should not panic – there are solutions available if they take advice and they can deal with the situation if they take action. That should include looking at all aspects of their finances including their pension fund to maximise income and tax-free cash from annuities.”