Older borrowers thrown a lifeline
Interest-only deal could help thousands keep homes
BIG banks are under pressure to throw interest-only borrowers a lifeline after a small lender launched a loan you can take into retirement.
Money Mail can reveal that Shawbrook will become the first bank to launch a retirement mortgage for interest-only customers who cannot clear their debts at the end of their deal. These borrowers are only paying the interest on their mortgages and may be turfed out of home unless they stump up thousands of pounds when their term expires. The mortgage from Shawbrook Bank will be available to interest-only borrowers aged between 55 and 75. Customers will be able to borrow up to half their property’s value — £150,000 on a £300,000 house, for instance — for another 15 years or until they reach age 85, whichever comes sooner. There are no penalties for repaying early. So, if the borrower wants to downsize or comes into an inheritance, they can clear the debt at any time.
However, the new loans will be expensive. Shawbrook will charge 6pc on a five-year fix, or £750 a month for a £150,000 loan. Santander charges 1.89 pc on a five-year deal, or £236 a month.
But crucially, Shawbrook will accept customers who say they will eventually repay the loan by selling their house. Most major lenders won’t accept this alone as a plan to clear the debt, making it tough to get an extension or a new deal.
Other lenders are insisting interest-only customers also start repaying some of the capital.
Around half of Britain’s 2.6million interest-only borrowers will struggle to clear their debts, according to the City watchdog. In 2013, the Financial Conduct Authority found they will fall £71,850 short on average. Banks have begun threatening borrowers with legal action if they can’t pay on time.
Banking chiefs told Money Mail that Shawbrook’s mortgage would put pressure on bigger lenders to offer better deals. Nationwide has already confirmed it is working on a retirement loan — but would not say when it will be available.
Baroness Ros Altmann, the former pensions minister, says: ‘It’s terrible that people can be kicked out on to the streets because they are considered too old to borrow.
‘It’s great that at last a company is willing to offer these people an option. It could mean thousands of people get to stay in their homes.’
Interest-only loans boomed in the Eighties and Nineties, at one point accounting for more than eight in ten new mortgages.
They were flogged as a cheaper way of getting on to the housing ladder than a standard mortgage.
In the early days, banks forced customers to pay into an investment that would clear the debt when the loan ended. But these socalled endowments often performed abysmally, leaving borrowers facing shortfalls. By the Nineties, banks rarely asked customers to pay into an investment.
After the financial crisis, it became difficult for borrowers to extend their loan into old age. Some lenders have allowed customers to stay on interest-only mortgages until age 75, but others have stopped offering the deals altogether.
Colin Hall, a mortgage broker, and his wife fear they will have to sell their four-bed detached home.
They took out a £217,000 interestonly loan on their house, now worth £360,000, with Mortgages Plc in 2005 with the intention of paying down the debt. But Colin, 71, could only afford the interest as his brokerage struggled in the financial crisis.
The loan matured two years ago and they have been given until Friday to repay the money — or their home will repossessed.
Colin says: ‘We’re devastated. We should have paid off our mortgage, but we’ve lived in this house for 27 years and want to stay.’ Mortgages Plc declined to comment.
Gillian and Ramsis Boulos, in their 60s, were £34,000 short of the £138,000 they needed to clear their mortgage when it ended last month. They had been told their endowment would easily pay off the debt — but it didn’t.
Gillian, who works as an assistant to a retired diplomat, says: ‘I have some jewellery I can sell, but we are going to need to take out a bank loan for the rest.’ The endowment was sold by Allied Dunbar, now owned by Zurich, which is carrying out a ‘thorough review’ of the case.
Shawbrook’s deal is one of two that give struggling older borrowers more time to repay. The other, from tiny pension firm Hodge Lifetime, lets you borrow up to 60pc of the property value and is only available through mortgage brokers. It also has early repayment fees.
Some borrowers have downsized or taken out equity release plans, where the interest rolls up and doubles in size every 11 to 12 years. The costly loans are repaid when you die or are taken into care.