A ‘mortgage time bomb’ is looming for people aged over 50 with interest-only mortgages and who had hoped that an endowment would clear the lump sum, typically after 25 years.
Some million such borrowers who are rapidly reaching the end of the mortgage period say the endowment will fall short.
According to Saga, one quarter of this group, with an average mortgage debt of £49,000, may need to sell their home.
The crisis has been exacerbated by this year’s Mortgage Market Review.
Previously, older borrowers – particularly those still in work – could switch to a repayment mortgage. But many have been prevented from doing so by the new ‘affordability’ rules introduced by MMR.
For such people, the stark reality is that they will have to sell, and quite soon.
For others, selling is not the only solution: some borrowers will dig into their savings, investments and pensions, but this may only tide them over the short term and they will have to sell eventually.
Others, however, will take out so-called ‘lifetime mortgages’ – described by some experts as the solution of last resort.
Santander has become the first bank to say it will offer lifetime mortgages, effectively a form of equity release, which will allow borrowers to stay in their homes, continuing to pay monthly interest, until the day they die.
The bank said it is one option to be considered, in order to save families from eviction or being forced to sell up.
Other banks are said to be following Santander into the lifetime mortgages market.
However, a lifetime mortgage could mean their children having to forfeit their inheritance, with the family home being sold to repay the debt.
I once sold a house for someone who had a lifetime mortgage. I'm not entirely sure of ALL of the ins-and-outs, not being an FA obviously. But I sold his house for £215k, and after paying mine and the solicitors fees, and a few credit cards, he struggled to afford a small two bedroom flat for £95k, and he admitted himself that when he passed away he would have nothing to leave to his children. I don't like lifetime mortgages, but I also don't like Shared Ownership either…
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There is not a "mortgage time bomb" at all. Virtually every older person who took out an interest only mortgage has considerable equity in their property and the majority allowed for downsizing ages ago having been warned regularly about their shortfall or need to repay at the end of the term. Most lenders will allow continual payment of interest at the end of the term for a while, as long as the borrower has a plan in place. For the few who have decided that they want to stay in their homes there is equity release available and the Santander lifetime mortgage model. Big deal I think not.
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