Growing numbers of people with maturing interest-only mortgages are raiding the equity in their homes to pay off the debt, figures reveal.
One of the leading firms specialising in retirement planning said it had seen a “surge” in sales of lump-sum equity release plans over the past 12 months as people try to find the money to repay what they owe their mortgage lender.
Key Retirement said it believed this increase was largely being driven by customers who needed the maximum cash available now as they were intending to use the lump sum to pay off shortfalls in interest-only mortgages.
There have been a series of warnings about this type of home loan in recent years. In September 2015 Citizens Advice warned that almost a million people had no strategy in place for repaying their interest-only mortgage and could face repossession as a result. And in 2013 the Financial Conduct Authority published research showing that up to 2.6m interest-only mortgages were due to mature by 2041, of which almost half of the homeowners may be unable to repay the loan at the end of the term.
Key retirement said its data for the period 1 January to 31 March 2016 showed that 40% of customers were taking a single lump sum advance to reduce their debts, up from 30% for the same period in 2015. The average amount being released is £76,000, though in London it is a lot higher: £134,000.
Dean Mirfin, the firm’s technical director, said: “The record high number of equity release plans being taken out underlines how property wealth is an important part of retirement planning.”
He added: “It’s long been predicted that as the first large wave of interest-only mortgage maturities begins, more customers will turn to equity release to plug this gap.”
Citizens Advice had warned that “time is running out” for some homeowners, who would either have to sell their home or find the money from somewhere to pay off the debt, or risk having the property repossessed. Meanwhile, the FCA had put the average shortfall at more than £71,000.
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