Air, the leading membership-based platform for later life lending professionals, has warned that thousands of older homeowners reaching the end of interest-only (IO) mortgage terms are unaware of all the options available to them, risking a significant increase in poor consumer outcomes.
New data from UK Finance shows that 60,000 IO mortgages will reach maturity by 2027, with a combined value of approximately £9 billion. Critically, the majority of those borrowers have loan-to-value ratios below 50%, meaning, that for those over the age of 55, lifetime mortgages and retirement interest-only products are well within reach for many of them.
The consequences for those who do not receive a full picture of their options can be significant. Borrowers may draw down pension assets to clear their mortgage balance, potentially triggering tax liabilities, perhaps crystallising investment losses at the wrong time and reducing the pot that may be used to purchase an annuity and secure guaranteed retirement income for life. Others may pursue a standard repayment mortgage where full monthly capital repayments place unnecessary strain on disposable income particularly if retirement is approaching and income may fall. Some may face selling a home they could have kept.
The FCA has recognised the issue. Its recent consultation paper CP26/18 explicitly identifies lifetime mortgages and RIOs as appropriate solutions for over-55 customers transitioning off IO products and places an expectation on the industry to ensure customers are made aware of the full range of options available to them.
Modern lifetime mortgages are materially different products from those of a decade ago. They require no affordability assessment, carry rates fixed for life, allow interest to be serviced in full, in part or not at all, and carry embedded protections including certainty of tenure and a no negative equity guarantee. For the right customer, and with the appropriate advice alongside, they offer a way to remain in their home, manage cash flow and preserve financial flexibility in later life.
Will Hale, CEO, Air said:
“These are real people facing what can be a worrying deadline, and our industry has a collective responsibility to make sure they understand all their options. Advisers, lenders and sourcing platforms all have a role to play in ensuring later life lending is part of the conversation wherever it is relevant. A borrower with significant equity in their home and an IO mortgage maturing in the next two years has more options than they probably realise. But they will only benefit from those options if the right conversations happen at the right time. The data points to a large group of consumers who stand to gain from better joined-up thinking across the industry, and that is exactly what we should be focused on delivering.”
