Mortgages  

Advisers demand interest-only equity release innovation

Advisers demand interest-only equity release innovation

Over 40 per cent of advisers want to see equity release lenders launch more solutions for customers facing interest-only mortgage shortfalls, according to Bower Retirement Services.

Its quarterly research into adviser views found that innovation on plans suitable for interest-only customers came ahead of 37 per cent who wanted to see rate cuts to encourage more customers.

The average adviser has 21 per cent of over-55s clients still paying mortgages and around half (48 per cent) of them have interest-only deals.

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A further one in six advisers surveyed said 40 per cent or more of over-55s have not paid off mortgages and half of Bower’s adviser team report that more than half of their over-55s clients are on interest-only deals.

The Financial Conduct Authority estimates that between 2017 and 2020 around 120,000 interest-only customers aged 65-plus will have to repay loans and are estimated to have loans-to-value of around 75 per cent - on an average house price of around £180,000 that implies a debt of £45,000.

Over the next 30 years, the FCA calculated that there are 2.6m interest-only mortgages due for repayment and 48 per cent of all borrowers are underestimating their shortfall.

Andrea Rozario, chief corporate officer at Bower, said that while equity release lenders have launched a range of plans suitable for people facing interest-only shortfalls, it is clear that advisers want to see more choice.

“It can make sense to roll over an interest-only mortgage into a lifetime mortgage and particularly so when customers do not want to or cannot move home and are struggling to find the capital to meet their shortfall.”

Bower’s research also revealed that advisers are expecting more competition in the equity release market this year as it expands, with around 83 per cent believing at least one or two new lenders by the end of the year.

peter.walker@ft.com