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Surge in borrowers using equity release to clear interest-only loans

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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.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. And this is logic? It seems to me that this is just swapping one debt for another. But who should be surprised – this is a great illustration of ‘Feckless Finance’. No wonder the economy is in a mess.

  2. I’m not unsympathetic to the emotional impact of having to leave your house because it’s no longer affordable.

    But that’s the inevitable endgame of overborrowing, and i suspect a considerable number of people who did that were wilfully blind to the consequences when they signed on the dotted line.

  3. This really is a small problem with many different solutions.

    The growing number of 8.6 million UK renters paying an average of 44% of their net income is more significant.

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