Santander mulls equity release for interest-only borrowers

Santander is considering offering an equity release mortgage product next year for people with interest-only propositions, it has been confirmed.

A spokesman for the bank said: “As a responsible lender it is right we consider all options for allowing customers to stay in their homes and we are doing this. Offering a lifetime mortgage is one option we are considering for 2015.”

Traditionally, a lifetime mortgage allows homeowners to defer making monthly interest payments. The homeowner is allowed to roll-up the payments, which is repaid on their death.

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However, while there are no specific product details from Santander, it is understood that interest would not be added to the debt or rolled-up. The property owner would continue paying interest, subject to affordability.

Nigel Waterson, chairman of the Equity Release Council, said: “It is important to remember that lifetime mortgages have an established regulatory definition, and that council members sign up to a range of consumer safeguards.

“A number of products offer the consumer the option of paying interest as they go along, and switching to the rolling up of interest to be paid when the property is sold, but we would have concerns about a model that required interest payments, the non-payment of which could mean people losing their home.”

Janet Davies, managing director of long-term care advisory network Symponia, said: “The concept is not a bad one overall, but some people taking out interest-only mortgages are not always aware of exactly what they have purchased and may see the perpetual debt as a problem.

“Whereas others will see nothing wrong with a mortgage that lasts a lifetime. This could also be a really good way of funding multi-generational households, the debt stays with the property/family as the senior members dies.

“As with all financial decisions affecting older people, as long as the potential need for care and its funding is also placed into the mix, we think that it has merits.”

Adviser View

Dean Mirfin, group director of Lancashire-based Key Retirement Solutions, said: “The possible launch of a Santander lifetime mortgage demonstrates major banks are waking up to the fact that homeowners are confident in using their property wealth to improve living standards in retirement.

“Advice is absolutely crucial when taking equity release – around 90 per cent of sales are currently through advisers – so it will be interesting to see the detail of how Santander plans to sell its lifetime mortgage.”