Thousands of Santander customers aged over 60 who may be facing difficulty repaying the capital owing on their interest-only mortgage have been offered a lifeline.
Legal & General has partnered with Santander to give the bank’s customers the opportunity to change their interest-only deal to a lifetime mortgage.
The agreement with Santander aims to bring greater certainty to thousands of borrowers who face difficulties finding the money to repay the capital owing on their mortgage or keeping up repayments into retirement.
A lifetime mortgage is a type of equity release which you can use to extract your funds in a single lump sum or in smaller amounts over time through what is known as drawdown.
Around 600,000 people will see their interest-only mortgages mature by 2020, with the first wave hitting this year. This will leave homeowners with important decisions to make, including the loss of their home through the need to downsize to repay the original capital.
Bernie Hickman, chief executive officer at Legal & General Home Finance, said: “This is a really positive move for the retirement lending market that will see more customers realising the benefits of releasing equity to make their retirement better. We are particularly excited about this new partnership, which builds on Legal & General’s long-standing relationship with Santander and we are delighted that they have chosen us as their partner.
“Thousands of borrowers need to find a way to pay back the capital on their interest-only mortgage when their term ends and often, if they are retired, they don’t have the income to support the mortgage repayments required to do this.”
Specialist lender Key Retirement will be working alongside L&G to offer free advice to Santander customers.
Colin Taylor, chief executive of Key Retirement, said: “Equity release can be the ideal solution for many people who are not ready to downsize and also want more financial flexibility in later-life. However, specialist advice in this area is vital to ensure consistently good outcomes for customers.
“With over 18 years’ experience specialising in this market, we look forward to helping Santander customers to remain in their homes and to enjoy a retirement free of the pressures of ongoing mortgage repayments.”
Equity release allows you to gain access to the wealth tied up in your property without having to sell or move home. It is designed for older homeowners who own their property outright or have relatively small mortgages to pay.
You can borrow against the value of your home, sell it or part-exchange it for a lump sum or a regular monthly income.
An alternative to a lifetime mortgage is a home reversion plan, which allows you to access all or part of the value of your property while retaining the right to remain in it rent free.
According to the Equity Release Council, equity release lending went up 16% in 2015 to £1.61 billion. More than 22,500 new plans were agreed last year, the highest number since 2008.
While equity release can be a good option in getting access to money, there are some drawbacks.
Equity release can be more expensive than a traditional mortgage as you could be charged a higher rate of interest depending on the plan you choose. You may also face charges if you are looking to pay back your money earlier than originally intended.
If you take out a home reversion plan, for example, you could also get a far lower value for your home than selling it on the open market. Equity release also drain your home of its value leaving little left to for your children to inherit or to use for care fees. The money you receive may also affect entitlement to state benefits.
Shall this extend into Northern Ireland also considering L & G do not extend their current product range to lend here?
L&G said that customers in Northern ireland are currently not eligible.
A customer from Northern Ireland can still receive advice regarding lifetime mortgages from Key Retirement.