There is an interest-only timebomb and borrowers need more protection, Nigel Waterson, the chairman of the Equity Release Council, has warned.
Referring to a revival in interest-only mortgages, Mr Waterson warned that borrowers could find themselves lacking the same protections as those with lifetime mortgages. He said: “With more interest-only mortgages predicted to emerge over the next year, it is vital that solutions for existing borrowers in this category who lack a repayment plan do not create confusion or scrimp on the protections enjoyed by consumers who opt for equity release.”
There had been talk earlier this year of banks extending the contracts of interest-only borrowers for the rest of their lifetime, which would allow them to put off settlement of the capital owed until the borrower died and their house was sold.
However, Mr Waterson said: “It is important not to assume this aligns with what regulators define as a ‘lifetime mortgage’.
“The latter can include the option for consumers to pay interest but – crucially – does not oblige them to do so without the freedom to move to a roll-up product if needed.”
He said the way to tackle this “timebomb” would be by not compromising on the level of advice and protection which equity release borrowers have.
Figures from the Equity Release Council showed lending passed £1bn in the first nine months of 2014.
The £1.02bn total for the first three quarters of 2014 was more than the entire year’s lending totals for 2009 to 2012, and 95 per cent of 2013’s total market value.
Adviser view:
Rob Brennan, of Worcestershire-based The Right Equity Release, said: “There is a big issue at the moment that we find with clients coming to the end of their interest-only mortgages and not being able to find a lender that will accept them.”
