How eq­uity re­lease could help pay off in­ter­est-only mort­gage

Lennox Herald - - NEWS -

Ex­perts are warn­ing that thou­sands of re­tired home­own­ers may face a short­fall on their mort­gages this year as in­ter­est-only terms come to an end.

The Fi­nan­cial Con­duct Au­thor­ity has flagged 2017-2018 as the first year in which a wave of in­ter­est-only mort­gages sold in the 1990s and 2000s will reach ma­tu­rity.

It es­ti­mates al­most half of those with in­ter­est-only mort­gages will not be able to re­pay their loan, lead­ing to an ex­pected in­crease in the num­bers look­ing to eq­uity re­lease – through which home­own­ers can ac­cess prop­erty wealth – to help plug the gap.

Eq­uity re­lease is avail­able to those aged be­tween 55 and 95, who own a prop­erty worth at least £60,000.

The amount of tax-free money re­leased varies de­pend­ing on fac­tors such as age and the value of the prop­erty but, last year, mort­gage re­pay­ment ac­counted for 22 per cent of the funds re­leased, ac­cord­ing to over 55s fi­nance spe­cial­ists Key Re­tire­ment, with this fig­ure set to rise.

They re­cently re­vealed the av­er­age cus­tomer ac­cessed nearly £78,000 from their homes last year, with two-thirds us­ing the cash to make home and gar­den im­prove­ments, and around a third spend­ing some of the money on clear­ing loans or credit card debts, nar­rowly ahead of the 29 per cent who used the money to fund hol­i­days.

In­dus­try ex­perts es­ti­mate al­most half of home­own­ers with in­ter­est-only mort­gages will not be able to re­pay their loan in full when the term ends. And, says Dean Mirfin, of Key Re­tire­ment, it is a prob­lem that is not go­ing to go away.

He said: “With 2017 be­ing the start of the first ma­jor wave of in­ter­est-only mort­gage ma­tu­ri­ties, we ex­pect de­mand from those with a short­fall to turn to eq­uity re­lease.

“Down­siz­ing is an op­tion but many home­own­ers want to re­main in their prop­er­ties, which may be close to friends and fam­ily.

“For them, choos­ing the money from their home to re­pay the out­stand­ing mort­gage may be the right op­tion. With the right to stay in their home for as long as they want, the out­stand­ing loan can be cleared us­ing the cash un­locked from their prop­erty.

“Last year, 22 per cent of Key Re­tire­ment cus­tomers re­leased money for just that pur­pose.

“With bor­row­ing op­tions lim­ited for those in re­tire­ment, prop­erty for some could be the an­swer to many of their fi­nan­cial needs in re­tire­ment when faced with pen­sion and sav­ings short­falls.”

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