Over the year 2015 there has been a significant uplift in the number of interest-only borrowers turning to equity release to repay an outstanding mortgage.
According to Age Partnership the number of customers in the UK using equity release to repay an interest-only debt increased by 68 per cent from 1,605 in 2014 to 2,697 in 2015.
This follows the tougher affordability criteria introduced by the Mortgage Market Review in April 2014.
On average, customers using equity release to repay an interest-only mortgage in 2015 held £13,392 in savings and according to Age Partnership after releasing equity from their homes and clearing their interest-only debt, they were left with an average of £24,167 in additional cash.
Annual change in profile of customer
Average age of customer at completion
Number of interest-only customers using equity release
Average interest-only mortgage outstanding
Average value of property
Average equity released
Average existing savings
Average cash after equity release
Simon Chalk, equity release expert at Age Partnership, said for the millions of homeowners who bought their homes with an interest-only mortgage, the arrival of the Mortgage Market Review will have undoubtedly shaken up the future of their finances.
“Many of these borrowers will have been attracted by the lower monthly payments on offer through this form of mortgage – which excludes any regular repayment of capital, making property ownership affordable to them.
“We have clear evidence emerging that the MMR has meant hundreds of thousands of older borrowers are struggling to find a repayment option. They simply don’t fit the bill for lenders anymore, as mortgage lenders have imposed much stricter lending criteria on their customers.
Mr Chalk said this is especially the case among the older generation of borrowers who face reluctance from lenders to extend the term, or remortgage their debt once they reach a certain age, regardless of their financial position.
Dean Mirfin, technical director at Key Retirement, said: “Our analysis would point to the actual numbers being considerably higher than those illustrated. Last year nearly a third of equity release customers that Key helped repaid an outstanding mortgage.
“Our figures indicate that of these those with a an interest only mortgage would be more representative of between 4,000 and 5,000 customers with regard to the market as a whole.”