Shawbrook Bank is hoping to shake up the mortgage market with a loan that offers a solution to borrowers who can’t afford to clear their debts when their interest-only deal ends.
The new product is aimed at borrowers aged 55 or over and gives them an alternative to equity release when their interest-only mortgage ends.
The range includes three and five-year fixed rates from 5.50% and five to 15-year variable rates from 5.25%.
It will initially be available to brokers on an exclusive basis via specialist advisers Key Retirement Solutions.
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.
This could be the result of a planned repayment vehicle not maturing as predicted, or perhaps a reliance on property price growth, which has slowed down over recent years. It is clear that product innovation is needed to address the expected interest-only ‘ticking time-bomb’.
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 and downsizing their cherished family home, or turn to savings or pension pots. This is despite the fact that many have good incomes and can continue to service a mortgage.
The mortgage differs from other mortgages whereby customers have full flexibility to make additional payments to their mortgage without penalty, or can repay their mortgage in full at any time (discharge fee £120 in England and Wales, £180 in Scotland).
Maeve Ward, managing director of residential mortgages, said: “For many, the prospect of selling a cherished family home when an interest-only deal is coming to an end is an emotional wrench, especially when the ability to continue paying a mortgage remains.
“This new product not only provides peace of mind to those who do not want to sell their homes, or withdraw from their pensions, but also gives them the opportunity to borrow further to fund their future plans.”
According to 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.
The Council of Mortgage Lenders estimates that at the end of 2015 there were around 1.7 million pure interest-only mortgages outstanding with another 500,000 part repayment and part interest-only loans.
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