Interest-only mortgage crunch could fuel equity release uptake

Posted in: Corporate

  • New research has found that 28 percent of mortgage holders aged 55 plus have an interest only mortgage.
  • 40 percent of this group will see their mortgage come to term within the next five years – one in 10 (11%) within the next year.
  • Covid-19 related pressures on savings combined with the stock market crash, may mean that repayment vehicles have not performed as well as planned and could lead to a greater reliance on equity release to fill the gap.
  • One in four people (24%) who had previously released wealth from their properties used it to help pay off a mortgage.
  • One in five (20%) over-55s also say they are now more likely to consider equity release due to the financial impact of Covid-19.
  • An ‘interest-only mortgage crunch’ could see a wave of over-55s looking to equity release as a means to repay their outstanding mortgages in the near future.

    New research from OneFamily found that 28 percent of mortgagors aged 55 plus have an interest-only mortgage4. The research also suggests that, over the next five years, 40 percent of all over 55s with an interest-only mortgage will see them come to term.

    This means that, potentially, one in 10 (11%) mortgage holders aged 55 plus will have to pay off their remaining interest-only mortgage or find an alternative arrangement within the next year. Many will have planned for this eventuality with the intention that they realise assets or use a repayment vehicle such as an investment policy that would be due to mature at the same time.

    However, this comes at a time when the UK faces the worst recession in a generation and the pressure from the Covid-19 crisis weighs heavily on personal finances and savings. One in five of those surveyed (20%) said that recent news around the virus, and its potential impact on their finances and lifestyle, would mean that they are more likely to release equity from their properties.

    The financial landscape has also changed drastically since these mortgages were taken out; the 2008 stock market crash, years of austerity and the recent turmoil in the markets have all had an impact. Those who financed their homes believing that they would be able to repay their mortgage from the future value of assets or from investments may now need to look for alternative ways to cover the costs.

    More than 60,000 over 55s with an interest-only mortgage are expected to consider equity release within the next five years5. Paying off an existing mortgage is the key reason stated by one in four (24%) of those surveyed, who said that at least part of the cash released was used for this purpose.

    Paul Bridgwater, OneFamily’s Head of Lending Proposition said,

    “It’s a potential perfect storm for holders of interest-only mortgages to see them coming to term at a time when there’s likely to be pressure on their finances. For example, they may now need the assets that they’d allocated to the repayment of their mortgage to help other family members who are struggling.

    “Additionally, their investments could have devalued following the stock market crash or simply not performed as expected. Uncertainty in the housing market may mean that property assets that they were planning to realise could also have dropped in value, so the reality is that mortgagors could need to look to an alternative means of financing to cover the shortfall.

    “As ever, financial advice will be crucial in helping this group to find their way through these difficult issues. Equity release is one solution that might help homeowners to overcome these challenges.”

    All research conducted by Opinium, on behalf of OneFamily, in April 2020 among a sample of 2,000 UK adults aged 55+.