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Interest-only borrowers turn to equity release

Interest-only borrowers turn to equity release

Category: Retirement

Updated: 15/03/2016
First Published: 25/02/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Do you have an interest-only mortgage? If so, how are you going to repay the balance? You may have suitable investments to cover the full amount, or you may be considering remortgaging to a full repayment plan, but thanks to the Mortgage Market Review (MMR), the latter option could be more difficult to achieve than it once was. This is why a growing number of people are turning to equity release.

Clear increase

According to research from Age Partnership, the last year has seen a "significant uplift" in the number of interest-only borrowers turning to equity release to repay their outstanding mortgage. The figures show that 2,697 equity release customers took out a lifetime mortgage for this reason in 2015, an increase of 68% from 2014, when 1,605 customers did the same.

Analysis suggests that much of this could be the result of the mmr, which came into being in April 2014. Borrowers now face much stricter lending criteria, which means that a growing number of older homeowners could be struggling to extend the length of their mortgage term simply because of their age.

Frustrating it may be, but this assumption is backed up by the figures, which show a "notable peak" in the number of interest-only customers using equity release after the launch of the MMR: in the first three months of 2014, prior to the implementation of the new regulations, just 45 customers used equity release to pay off their interest-only mortgage. This rose to 510 customers in the same period last year, and the figure has been increasing steadily ever since, with the number reaching a record 775 in the final three months of 2015.

"For the millions of homeowners who bought their homes with an interest-only mortgage, the arrival of the Mortgage Market Review will have undoubtedly shaken up the future of their finances," said Simon Chalk of Age Partnership.

"We have clear evidence emerging that the MMR has meant hundreds of thousands of older borrowers are struggling to find a repayment option. They simply don't fit the bill for lenders anymore, [so] for these interest-only prisoners, options such as a lifetime mortgage could provide an age-sensitive solution and allow them to dip into their housing equity to pay off the remaining debt."

Cash injection

The amount of equity (and therefore money) released through a lifetime mortgage could prove incredibly beneficial, particularly given the fact that the average customer now has a whopping £66,035 outstanding on their interest-only mortgage, an increase of 19% from a year ago. That kind of sum could be almost impossible to find out of the blue, so for those who are unable to remortgage to a better deal, equity release could provide a valuable lifeline.

It's perhaps no wonder that the amount of equity released through this route is also continuing to rise. Customers released an average of £76,810 last year, up from the £69,617 figure of 2014, "reflecting how growing numbers of customers with larger interest-only debt are turning to equity release as alternative means of repayment", it said in the report.

Could you benefit?

If you're currently stuck with an interest-only mortgage that you can't escape from, equity release could well be a viable option. Its popularity has soared in recent years as a way for homeowners to profit from rising house prices, letting them access the wealth tied up in their home without needing to downsize, and it could be a great way to clear your mortgage debt. Find out more about equity release by reading our guide, and use our no-obligation planning service to see if it could be worth considering.

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.