A new study has revealed that homeowners are increasingly being forced to sell their homes to pay off interest-only mortgages ahead of looming payment deadlines.
According to Key Partnerships, more than two out of five estate agents (43%) say the number of customers forced to sell to pay off interest-only mortgage debts has increased over the past two years.
An interest-only mortgage is when the monthly mortgage payment only covers the interest owed. Hundreds of thousands of borrowers who took out a loan now face having to pay it back.
They were once the norm in the UK and many were taken out with little thought to how they would be repaid.
Mortgage debt issues are particularly affecting older customers trying to downsize to less expensive houses to release cash.
Key’s research found nearly three out of four (73%) would-be downsizers are paying off mortgages.
Estate agents are regularly asked for advice and guidance on mortgages and remortgages by clients – with nearly six out of 10 (58%) saying clients want support on mortgages.
The survey found growing demand for potential solutions to interest-only mortgage repayment issues, such as lifetime mortgages, with just 50% of estate agents believing they know enough about the plans.
More than half (52%) say they would be more likely to suggest equity release as a solution if they had a partnership with an independent expert adviser.
Data from the Council of Mortgage Lenders shows the number of outstanding interest-only mortgages has fallen by more than a third since 2012 – but what is not evident for maturing loans is how they are actually being repaid.
The evidence points to the fact that far too many are having to sell their homes to clear the outstanding debt.
Will Hale, director at Key Partnerships, said: “Selling up to pay off an interest-only mortgage can make financial sense but it is worrying if older homeowners are being forced to sell and are not aware of all their options.
“Equity release enables people to stay in their home and not have to downsize, or even in extreme cases lose their house. Some lenders are engaging with equity release as a solution and we would urge others to follow.
“Estate agents are valued as a source of financial guidance and it is clear that those who can discuss equity release as an alternative to selling will be able to benefit from an additional revenue stream by referring potential clients to a specialist.”
The FCA estimates that 600,000 interest-only borrowers will see their mortgages mature before 2020. Of these customers, just under half are expected to have a shortfall, with around a third of these shortfalls expected to be over £50,000.
Currently, the options open to people over 55 reaching the end of an interest-only mortgage with a shortfall are limited as they are often restricted by their age – too old for further borrowing, but too young for equity release.
Many of these people will either have to resort to selling, downsizing, or turning to savings or pension pots. This is despite the fact that many have good incomes and can continue to service a mortgage.
According to research by over-60s property experts Homewise, one in 10 over-55s UK homeowners are still paying interest-only mortgages and face the prospect of clearing their debt when the deal runs out.
While the majority are confident of clearing the debt, substantial numbers fear they will not be able to. The study shows 17% of interest-only borrowers aged 55-plus – equivalent to 24,300 – admit they will be unable to clear the debt.
The average amount owed by over-55s with interest-only mortgages is around £91,000, with one in seven owing more than £150,000.
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