More and more people are being forced to sell their homes in order to pay off their interest-only mortgages, according to estate agents.
In a poll of 104 estate agents, more than two in five (43 per cent) said the number of customers forced to sell their homes to pay off interest-only mortgage debts had risen over the past two years, according to a survey for equity release referral service Key Partnerships.
Older customers are often having to downsize in order to release cash, with three out of four (73 per cent) would-be downsizers paying off mortgages.
In May, the Council of Mortgage Lenders (CML) revealed the number of residential interest-only mortgages outstanding had fallen to less than 2m - down from 3.2m in 2012.
But the CML research did not show how people were repaying their interest-only products – and the new data suggests that, for many people, the solution involves selling their home.
Interest-only mortgages, which require borrowers to pay off monthly interest but not capital, were popular with homebuyers in the years leading up to the financial crisis.
But many of those who took out the loans failed to put adequate repayment plans in place, leaving them in danger of repossession.
In 2012, regulations were introduced to ensure the mortgages could not be sold without a repayment plan, leading to a decline in their popularity.
Around 10,000 borrowers a year between now and 2020 are set to reach the end of interest-only loans with either a projected shortfall from their repayment strategy or no strategy at all.
The new research found growing demand for potential solutions such as lifetime mortgages, which involve taking out a loan against the value a person has built up in their property - but just 50 per cent of estate agents said they knew enough about the plans.
More than half (52 per cent) said they would be more likely to suggest equity release as a solution if they had a partnership with an independent expert adviser.
The research was based on an online poll conducted during April this year by independent company Pollright.
Will Hale, director at Key Partnerships, said: “Selling up to pay off an interest-only mortgage can make financial sense but it is worrying if older homeowners are being forced to sell and are not aware of all their options.
“Equity release enables people to stay in their home and not have to downsize, or even in extreme cases lose their house. Some lenders are engaging with equity release as a solution and we would urge others to follow.”
Simon Webster, managing director at Kent-based Facts and Figures Financial Planners, stressed that the figures did not necessarily represent bad news.
“If the client had paid the same money every month to rent, they would have nothing – but they have equity, because property prices have gone up,” he explained.
“Equity release is a possible answer, but bear in mind the maximum loan-to-value is around 20 to 30 per cent for someone aged 65. If they extend their interest-only term up to 70, they could perhaps switch to repayment and reduce the debt.
“The interest-only mortgages have enabled clients to build up significant equity. Some people will have to sell, but they are trousering the equity.”
simon.allin@ft.com
