The number of borrowers using equity release as a means of paying off an interest-only mortgage has trebled since the Mortgage Market Review was introduced, says Age Partnership.
Over the past couple of years – even before the MMR – lenders have tightened up on their lending into retirement criteria, possibly in anticipation of the rules, which launched last April.
A study by Age Partnership estimates the number of people to have used an equity release plan to pay off their interest-only mortgage has risen 193 per cent from 78 in April 2014 to 229 in April 2015. The retirement provider estimates a total of 2,246 older borrowers have used equity release to pay off an interest-only mortgage over the past 12 months.
Age Partnership says customers released an average of £73,980 in April 2015 and the average interest-only mortgage held was £61,846.
In a thematic review, published in May 2013, the FCA estimated that 260,000 of the 2.6 million outstanding interest-only mortgages did not have a repayment strategy in place to repay the capital at the end of the term.
Age Partnership equity release expert Simon Chalk says: “The interest-only time-bomb has been made all the more devastating by the affordability criteria introduced by lenders as a consequence of the Mortgage Market Review.
“Fewer older homeowners have the opportunity to remortgage to set up a new strategy to clear their debt. That leaves swathes of homeowners with no obvious way to clear their interest-only debt whilst still remaining in their home. In the worst cases, retirees are being forced to sell-up and move to a smaller home to pay down their debt – a stressful and emotionally turbulent outcome which often causes unnecessary upset in later life.
“This is an urgent situation; those borrowers with interest-only deals should not be forced to abandon their life-long homes.”