Statistics suggest that between now and 2032 there will be 40,000 interest-only mortgages maturing annually, with no obvious means for their older borrowers to repay them.
Last year the Financial Conduct Authority (FCA) estimated that 1.8 million people had outstanding interest-only mortgages and many did not have appropriate plans to pay them off, other than selling up, or taking on new borrowing usually in the form of equity release.
In September, the FCA published a paper on the financial needs of the UK’s ageing population. It said that the proportion of borrowers aged 65 or over will be one in four by 2050, and called for mortgage lenders to do more to help older consumers get loans. According to a study for equity release referral service Key Partnerships, 77% of mortgage advisers say that traditional lenders need to develop products specifically for customers with interest-only deadlines, and 79% say that traditional lenders have been slow to address the problem.
Age limits on lending are increasing
While the approach to later-life lending is inconsistent, some progress is being made in the mainstream mortgage market. Last year Halifax increased its lending age limit from 75 to 80, and Nationwide will now consider borrowers up to the age of 85. Co-Op Bank and Santander have both agreed partnerships with equity release lenders, too.
Currently, both Santander and Barclays will accept interest-only mortgages, for those that don’t want to switch to capital repayment loans, up to the age of 70, and Hodge Lifetime is offering specialist interest-only terms to people up to the age of 95.
Retirement interest-only mortgages
The FCA is considering allowing lenders to offer ‘retirement interest-only’ mortgages, providing older borrowers with an alternative to lifetime mortgages (equity release), which allow you to borrow up to 60% of the value of your home. Last year pensioners took a record £3bn out of their homes with equity release, and more than one in five used the money to pay off their mortgage.
If permitted, retirement interest-only mortgages will provide a viable alternative to older borrowers, who may not be ready to downsize or release equity from their property to repay their mortgage at the end of its term.