Ticking timebomb' of interest-only mortgages

28 March 2012

As the FSA reports on the high number of interest-only mortgages due to come to an end over the coming years, what are the implications for homeowners left with outstanding mortgages as they enter retirement?

Retiring with a large outstanding mortgage can be a financial drain for many retirees who face the prospect of making monthly mortgage repayments from their, often modest, retirement income. Spare a thought then for the thousands of pensioners who retire with large outstanding sums owed on interest-only mortgages.

'Ticking timebomb'
Identified by the Financial Services Authority as a 'ticking timebomb', maturing interest-only mortgages are a problem that is not going to fade away. Figures from the Council of Mortgage Lenders show that over 120,000 interest only mortgages will come to an end each year from now until 2020, with the figure closer to 160,000 for 2013. And the amounts owed are not small change; the average outstanding amount is near £60,000 for this year and next, rising each year until 2020 when the figure is estimated to be around £110,000.

Plans in place?
According to the Telegraph, 80 per cent of people with interest-only mortgages due to end soon have 'no repayment strategy'. Original repayment plans may have included endowments or investments which have since failed to mature to a sum which can cover the shortfall. With no repayment plan in place, the future can be daunting for many homeowners, especially those approaching retirement at the same time.

Considering your options
Downsizing is one option. In theory, selling your home allows you to repay the loan and hopefully have enough left over to move into a smaller property. However for many, downsizing is not a realistic option. Perhaps you live close to family and friends or maybe downsizing would simply not generate enough money to settle the mortgage and fund a new home purchase; an all too common scenario in today's volatile housing market.

Instead choosing to release money from your home to repay the outstanding mortgage may be the right option. With the right to stay in your home for as long as you wish, the outstanding loan can be cleared using the cash unlocked from your bricks and mortar. In fact, 16 per cent of Key customers release money for just that purpose.

If you have an outstanding mortgage that's causing you concern, why not speak to one of Key's expert advisers? Book a free initial no-obligation consultation to find out how much you could release, as well as hearing how all equity release plans reduce the value of your estate and may affect your entitlement to state benefits. Call us today on 0800 531 6027. We're here Monday - Friday, 9.00am - 5.30pm.

If you are considering equity release it is recommended that you read through is it right for you? carefully.