Equity release to defuse the interest-only ticking time bomb

Published: 18/04/2012

As hundreds of thousands of interest-only mortgages near the end of their term, borrowers could turn to equity release as a repayment strategy.

Interest-only mortgages have received a lot of air time of late. A popular way to purchase a property - largely due to the smaller monthly payments required - this cheaper alternative could now cost interest-only homeowners big as many approach the end of their mortgage term with little or no funds to repay the remaining balance.

According to figures from the Council of Mortgage Lenders (CML), there are around 150,000 interest-only mortgages which are set to expire every year until 2020. The Financial Services Authority (FSA) expanded on these figures estimating interest-only mortgages worth £120 billion will need to be repaid between 2011 and 2020.

The FSA also believes 80 per cent of borrowers don’t have a realistic repayment strategy.

With poor pension provisions, depleted savings and increased cost of living, the equity release market has experienced a continual growth in recent years, a trend which industry experts are expecting to continue in light of the interest-only time bomb.

Richard Espley is the Head of Equity Release at Goldsmith Williams:

“With strict measures being put in place for interest-only mortgages, it may be very difficult for the over 50’s to remortgage as an interest-only, leaving them with limited options such as selling the property or significantly downsizing.

“Given the increase in property value compared to when they first bought the property, an equity release plan could allow them to repay the outstanding balance on their mortgage whilst remaining in the property.”

Content correct at time of publication