Equity Release  

Interest-only 'time bomb' raises standards questions

Interest-only 'time bomb' raises standards questions

Figures in the equity release industry have called for its standards to be examined in order to address the large number of interest-only mortgages reaching maturity in the coming years.

There are predicted to be around 40,000 interest-only mortgages reaching maturity each year between 2017 and 2032.

Dean Mirfin, technical director at Key Retirement, estimated that 10,000 of these had either a shortfall or no way of paying the mortgage off.

He said: “We are really trying to do what we can to get the message out there that for people with maturing mortgages who don’t have a solution, equity release could be one.

“But you cannot have some of the guarantees the Equity Release Council insists on and help 10,000 consumers as well.

“When those products come to market it will be interesting to see how the ERC will react.

“We have got a lot of ideas. The main thing we have talked about is the hybrid product which allows a higher loan-to-value.”

There are 3.3m mortgage holders in the UK who have interest-only products.

Citizens Advice commissioned YouGov in 2015 to carry out a poll of 2,317 people, the results of which suggested that 1.7m of these people have no linked repayment vehicle such as an endowment or Isa.

The Equity Release Council, the trade body for the sector, sets product standards which its members must comply with.

Among these is a rule that all products must have a “no negative equity” guarantee meaning that when a property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to the provider, neither the client nor their estate will be liable to pay any more.

Dave Harris, managing director of more2life, said The Equity Release Council has been a crucial part of the equity release industry and helped create the high standards the market is known for.

But he said: “We do require a new way of thinking from the lending industry and all its trade bodies.

“We hope that the ERC will embrace new products from lenders and evolve its standards to promote the solutions the market can offer to advisers and end customers.

“I am confident this will happen as the ERC are keen to be engaged in the debate.”

Tom Moloney, corporate partnerships manager at Age Partnership, said: “It’s understandable that the ERC may be cautious when discussing alterations to the core principles.

“However we believe that the ERC understands that to meet client needs our offering must continue to evolve and this evolution will most likely mean change.”

Nigel Waterson, chairman of the Equity Release Council, said there was “no doubt” that equity release had an important role to play in addressing the interest-only “time bomb”.

But he warned that the ERC’s standards had been “fundmental” in growing the sector.

He said: “It would be doing a disservice to these customers if they were not afforded the same protections as others.