Homeowners who have relied on interest-only mortgages are increasingly being forced to sell up before their repayment term is reached.
The number of people having to sell their home and downsize is increasing. Estate agents are reporting that forty-three per cent of customers are forced to sell their home to pay off interest-only mortgages. Mortgage debt issues are particularly affecting later life customers who need to downsize to release cash locked in their property.
Are interest-only mortgages still available?
A survey by NOW: Pensions found that nearly four in ten homeowners (39%) think that unlocking equity from their home will be needed to funding their retirement. The same survey also shows that a quarter of homeowners will be expecting to have no private pension savings at all.
Interest-only mortgages are now difficult to find but this was not the case back in the eights and nineties. This together with self-cert mortgages and slack lending criteria by mortgage lenders. Industry figures show that about 10,000 borrowers a year between now and 2020 will come to the end of their interest-only mortgage. Many with no repayment plan. These were often people that have taken out endowment policies but cashed then in early or with a projected shortfall from their repayment strategy. Many have no strategy at all.
What can be done?
Options to remain in the family home, such as lifetime mortgages also known as equity release are still not being used.
Peter Anstee from Anstee & Co said-
“Being aware of all your options is important. Selling and downsizing can work if you have built up enough equity in your home. Sometime staying in your existing home is more important. Often people have friends, family and a strong social network that they do not want to lose. Equity release enables people to stay in their home and not have to downsize, or even in extreme cases lose their house. It also import that you look at the financial cost of the option available. However, the figures show that this problem is not going away. It is important that you get professional financial advice.”
Equity release products have become more flexible over recent years, with homeowners now able to take the loan in tranches. With new lenders coming to the market, this increased completion has seen a reduction in rate and more innovative products.
What are the downsides of equity release?
Equity release mortgages have their downsides. Interest is compounded (added to the loan) and builds up quickly over time. This will reduce the value of the homeowner’s estate. While equity release can reduce the value of an estate for inheritance tax purposes, taking a scheme earlier in life can see interest mount up. Leaving it as late as possible is best.
Other options may be to use a traditional mortgage. Mortgage lenders are increasingly allowing mortgages to run until the homeowner is in their 70s. With this, the drawback is that homeowners will have to meet income and spending criteria at a time when their earning are reducing.
How Anstee & Co can help with interest-only mortgages.
Having a plan is key. Our financial advisers are experts in not just equity release but all areas of later life financial planning. They will get to know your situation and what you are trying to achieve. The adviser will then design a financial solution that meets your needs. The first meeting is free of charge. We will not charge you for any work with telling in advance what the costs, if any, will be. We are members of The Equity Release Council.
Meetings can be arranged at a time and location that is convenient for you. This might even be at your home. We have offices in Kettering, Stamford and London. We make use of meeting rooms in Northampton, Towcester, Wellingborough and Bedford.
Leave A Comment