Interest-only customers ‘relying on downsizing’
Around four out of five interest-only mortgage customers are relying wholly or partly on selling their house to pay off the capital, new research from innovative equity release lender more 2 life shows.
Its nationwide study among mortgage advisers found 35% of advisers say clients are planning to downsize or sell their home to pay off loans while 43% plan to use a combination of downsizing plus other repayment vehicles.
more 2 life, which offers the Interest Choice lifetime mortgage, is warning that relying on downsizing is “akin to burying your head in the sand” and is urging lenders to focus on innovation. Its research shows 46% of mortgage advisers believe lenders and regulators are not doing enough to address the looming interest-only crisis
Financial Conduct Authority figures show 1.3 million interest-only customers face potential shortfalls on their mortgages with homeowners aged 55-plus the most at risk. Customer data from more 2 life demonstrates more than 80% of customers taking out its Interest Choice Plan are using it to clear mortgage debts and releasing £43,570 on average.
Jon King, Managing Director of more 2 life said: “There is growing demand for answers to the interest-only crisis and clearly advisers are concerned that not enough is being done by the industry.
“Relying wholly or partly on downsizing to pay off interest-only mortgages is akin to burying your head in the sand as ultimately people may not want to move or may find it difficult to sell.
“Mortgage lenders are starting to be more proactive in terms of communicating with customers but they also need to come up with more innovative solutions. Equity release has always been about people staying in their own home and people do it for the very reason that they do not want to move house.”
more 2 life’s research shows 21% of advisers say clients are relying on investments to pay off interest-only loans while 17% are banking on endowments and 11% on savings. Around 29% of advisers believe lenders and the Financial Conduct Authority are doing enough to address the interest-only issue.
more 2 life’s Interest Choice Plan enables customers to move from a fixed-date repayment style mortgage to a lifetime mortgage where they only repay on death or on moving into long-term care.
The Plan allows customers to choose the level of interest they pay on loans and the term, while fixing their interest rate and having access to a lifetime drawdown facility. Customers can choose to pay all or part of the monthly interest on their loan and choose how much to withdraw. Those who do not take the whole loan-to-value can make further withdrawals.
It is part of a focus on innovation at the lender which was also the first to offer improved LTVs to customers with medical conditions or lifestyles affecting life expectancy. Monthly rates on the Interest Choice Plan are 6.08% with minimum loans starting from £10,000 and the maximum is £450,000.