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Prior to around 10 years ago, taking an interest only mortgage was a popular option. Many people took an interest only mortgage and linked it to an investment or savings vehicle, typically an endowment or pension. However, it was also common to take a pure interest only mortgage, ie with no set means of repaying the balance at the end of the mortgage term. This has led to serious problems for thousands of borrowers who have reached, or are reaching, the end of their mortgage term and their lenders are demanding repayment of the mortgage in full. The change in mortgage legislation means that it has been extremely difficult to secure a new mortgage when you are nearing retirement, or when your proposed mortgage term will extend past standard retirement age.  This is compounded by some lenders’ unwillingness or inability to extend or re-issue mortgage terms when borrowers are at or nearing retirement. Typically, therefore, this can affect anyone with an interest only mortgage and is over the age of, perhaps 55. This has meant that for many, the only option is to sell their home to repay the mortgage. The good news is that there are now some new options from innovative lenders who have identified the need in the market, and therefore offering a potential lifeline to those on an interest-only mortgage which is coming to an end without a standard repayment vehicle in place as well as anyone looking to purchase in or around retirement.  
Here, Gregg Davies explains some of the existing and new options that are available:  
  • Sell your home and repay the mortgage. Not ideal or even feasible for most people.
  • Renegotiate terms with your existing lender. The appetite for this varies greatly between lenders, with some allowing a mortgage extension – subject to strict affordability, and usually being on a capital and interest basis; some offering a short term extension; and others flatly refusing to help at all. Unfortunately, the third option is all too common.
  • Equity Release / Lifetime mortgages. This is not the obvious or preferred choice for most people in this situation, and in fact, many won’t even qualify due to the very specific criteria of these mortgages.
  • Interest Only in Retirement. This is a new entrant to the market, and a few lenders are now offering mortgages that are ideally suited to people stuck in the interest only trap. Mortgages will be assessed on criteria including affordability and available pension, and will, unlike most equity release schemes, still require a monthly payment. However, they will be on interest only – therefore remaining affordable – and will have a lifetime term. These mortgages are also available for people wanting to move and purchase a new home.
  The message is that if you have an interest only mortgage with no repayment vehicle, there may be options available to you, but please act early. ima are a specialist adviser in later life mortgages and offer a free consultation to discuss clients’ circumstances and assess the options that are available Chat to us NOW! Click Here