Thousands of pensioners are tipped to be “at risk of losing their homes”. Is this true? What can you do?
4 minute read
There has been a slew of headlines lately warning that “thousands of pensioners are at risk of losing their homes” as their interest-only mortgages come to the end of their terms. But is this really the case, or is it simply alarmist agitation by the tabloid media? The truth is probably somewhere in between; in this article we’ll look at the facts, and what you can do if you are in this situation.
Who is at risk, and why?
Although interest-only mortgages are fairly uncommon now, they were quite popular as an alternative to repayment (or “capital and interest”) mortgages in the 1980s, 1990s and early 2000s. In more recent years, interest-only mortgages would only be granted where there was evidence of an investment or other plan to repay the mortgage balance at the end of the agreed term. However, this wasn’t always the case, and that means that there are borrowers whose interest-only mortgages are coming to an end, but they either have no plan in place to repay the mortgage, or the investments they do have in place will be insufficient to entirely clear the amount owed.
A recent investigation by financial regulators has revealed that over-65s account for one out of every nine interest-only borrowers. There are around 1.8 million interest-only mortgages in existence, which means over 200,000 pensioners with interest-only loans reaching the end of their mortgage terms in the coming years. In a worst-case scenario, this could mean borrowers having to sell their home they have lived in for decades and downsize, or even move into rented accommodation. Other borrowers may have to extend their mortgage term and postpone their retirement to pay off the balance.
What solutions are there?
Interest-only mortgages maturing without a repayment vehicle in place is undeniably a problem. However, while some media outlets have suggested that this will result in thousands of pensioners having their homes repossessed, the reality is that there are a range of potential solutions for borrowers in this situation. Lenders, as a general rule, will only repossess as a last resort; however, the earlier you look into your options and take action, the better.
Some lenders will agree to borrowers extending their mortgage term, either on a continuing interest-only basis, on a repayment basis or on a “part-and-part” basis that splits the mortgage between an interest-only element and a repayment element. The latter two options will allow you to pay off either all or some of the mortgage balance over the newly agreed mortgage term. Instead of staying with your existing lender, it may also be possible for some borrowers to remortgage to a different lender and secure a lower interest rate.
If you have a reasonable level of disposable income, or access to savings, then you may want to consider either making regular overpayments to your interest-only mortgage or, if your mortgage conditions allow it, making lump sum part repayments. Some types of mortgages apply charges for making early part repayments or overpayments, so check with your lender whether this is the case.
Some older borrowers may benefit from taking out an equity release to pay off the interest-only mortgage. Two types of equity release plan are available: lifetime mortgages and home reversion. Although the two schemes differ in details, they both work in broadly the same way: you receive a lump sum payment that is secured against the property, which you can continue to live in until you die or move into permanent residential care. You don’t have to make any repayments towards the equity release scheme during your lifetime; the amount borrowed and any interest and charges are repaid when the property is sold.
Contact Just Mortgage Brokers
If you find yourself in the position where your interest-only mortgage term is coming to an end and you don’t have the means to repay the loan, it’s important to take professional advice about your options. Call Just Mortgage Brokers today to speak to a fully qualified adviser, and discuss how we can help.