Interest-only mortgages with endowments have long been thought of as a disaster waiting to happen, and it now emerges that a third of over-50s could be facing the prospect of selling their home in order to pay off debt that has not been footed by a profitable endowment.
Initially, having an interest-only mortgage with an endowment policy seemed a prudent measure, as it promised to clear the mortgage debt and provide the funds for a comfortable retirement. However, according to research by Saga Personal Finance, this possibility has faded dramatically. In fact, more than two-thirds of borrowers with an endowment mortgage claim that their endowment policies will not clear their mortgage debt, let alone provide any surplus.
The figures show that around four in 10 over-50s are still paying off a mortgage worth, on average, £49,000. This is a large sum of money to pay off before retirement, and according to Saga's research, a third of those surveyed would need to sell their homes in order to clear the debt.
When questioned about how they would make up for their endowment's shortfalls, a third of respondents said that they would have to resort to dipping into their savings. Another 22% said that they had begun to make capital repayments to shrink the size of the debt, 18% stated that they would use other investments and one in 10 said that they had extended their mortgage to give them extra time to pay it off.
All of these methods, while practical, could deplete precious funds reserved for the future and may mean that mortgages are still being paid well into retirement, which could put dreams of a comfortable, debt-free retirement at risk.
Even more worryingly, more than one in 10 respondents admitted that they had no way of bridging the funding gap, something that could definitely put their future financial security at risk.
As a result of the failures of endowment mortgages, the prospect of having to sell up is becoming a very real possibility for many borrowers. But is it the only way out? Well, according to Saga, equity release could provide a viable solution that ensures borrowers get to stay in the home they have worked so hard for.
Jeff Bromage, chief operating officer of Saga Personal Finance, explains: "Being saddled with mortgage debt well into your retirement is far from ideal as it means keeping an eye on the coffers when you should be making the most of life.
"A growing number of people are turning to equity release in order to avoid selling their home; upping sticks is probably the least-favoured option for many facing a shortfall, as their home is so much more than bricks and mortar and will hold so many happy memories.
"If you're over 55 and a homeowner, equity release could be a solution. It gives you access to money tied up in your home, giving you peace of mind and the freedom to enjoy your retirement properly."
Of course, before taking equity release as an option, it's important to discuss the ramifications with your family and to talk about what it involves with a qualified adviser. You can get no-obligation advice and information using our equity release service – check it out if you would like to find out more about equity release and the products available.
Get advice and information on equity release with our equity release service
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.