A reported revival in interest-only mortgages presents new challenges for lenders, according to the Equity Release Council.
Council chairman Nigel Waterson says with more interest-only mortgages predicted to emerge over the next year, it’s vital that solutions for existing interest-only borrowers who lack a repayment plan don’t create confusion or scrimp on the protections enjoyed by other consumers who opt instead for equity release.
“There has been talk of banks extending the contracts of interest-only borrowers for the rest of their lifetime,” he says.
“This might allow them to put off settlement of the capital owed, for example, until they pass away and their house is sold. But it is very important not to assume this aligns with what regulators define as a ‘lifetime mortgage’.
“The latter can include the option for consumers to pay interest but – crucially – does not oblige them to do so without the freedom to move to a roll-up product if needed.”
Equity release lenders subscribe to a Statement of Principles which means borrowers choosing a recognised lifetime mortgage can get a guaranteed right of tenure, and can be assured protection against negative equity, among other safeguards.
Interest-only customers would be done a disservice if they were moved onto ‘lifetime’ products that fall short of offering the same protections, Waterson says.
“Borrowers’ housing wealth will form an important part of solving the interest-only timebomb. The challenge for industry is to support this without compromising on the standards of advice and protection that equity release borrowers enjoy, or creating confusion over the different options available.
“It is vital that regulators and lenders engage in discussions over these issues as more interest-only loans mature.”
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