Mortgage prisoners turn to ER after MMR
In April 2014 78 Age Partnership customers used equity release to pay down interest only mortgages, but that figure immediately increased to 124 in May 2014 before rising to 229 in April this year.
The Financial Conduct Authority has calculated that 300,000 homeowners will struggle to pay back interest-only mortgages over the next five years, although on Friday the Citizens Advice Bureau warned that nearly a million interest-only mortgagors are in a ‘financial black hole’.
Simon Chalk, equity release expert at Age Partnership, said: “The unintentional side-effect of MMR is that it has created a league of interest-only mortgage prisoners unable to remortgage to repay their debt.
“In the worst cases, retirees are being forced to sell-up and move to a smaller home to pay down their debt – a stressful and emotionally turbulent outcome which often causes unnecessary upset in later life. This is an urgent situation: those borrowers with interest-only deals should not be forced to abandon their life-long homes.
“Thankfully, rising house prices mean that some borrowers can use their housing wealth to pay down interest-only mortgages by simply switching to a lifetime mortgage.
“These cases are occurring more regularly, and can provide a way for retirees to ease the pressure of debt without leaving their homes. It’s fundamental to get the message out to retirees concerned about paying back an interest-only loan that equity release could work for them.”
In total 2,246 borrowers have used equity release to pay off an interest-only mortgage since the introduction of the MMR. Typical customers were 69 years old and released £72,980 in housing wealth.
Customers who turned to ER typically had less than £14,000 in savings, enough to cover 23% of interest-only mortgage debt.
The FCA estimated that around 600,000 interest-only mortgages will reach the end of their term by 2020 and half of those could become mortgage prisoners.