Mortgage advisers are seeing a surge in enquiries from people struggling to clear the capital on their interest-only mortgages ahead of their repayment deadline.
Two out of three mortgage advisers (63 per cent) have seen an increase in enquires from people having difficulty repaying capital on their interest-only loans in the past year, according to equity release referral service Key Partnerships.
The average age of customers facing shortfalls is 70, with nearly half (49 per cent) of advisers saying they regularly deal with customers who have endowments that will not pay off loans.
Meanwhile, 17 per cent have dealt with customers whose lender has already extended their repayment deadline.
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.
The Financial Conduct Authority is currently conducting a review into how firms treat borrowers whose interest-only mortgages are approaching maturity.
According to Key Partnerships, advisers forecast a 20 per cent increase in demand for new interest-only solutions from lenders over the next two years, while around 69 per cent of advisers are aware that equity release is a potential solution.
Around 46 per cent of advisers said interest-only customers aged 60-plus did not want to downsize to raise money, and 27 per cent said they had dealt with customers who could not afford to move to a smaller house.
In 2016, the Council of Mortgage Lenders – now known as UK Finance – revealed more than 300,000 borrowers had interest-only loans worth more than 75 per cent of their homes, and industry estimates show there are around 40,000 interest-only mortgages set to reach maturity each year until 2032.
Will Hale, chief executive of Key Retirement, said: “While the FCA consultation on retirement interest-only loans is welcome, there is a need for solutions, which is where equity release is playing a significant role.
"Selling up to pay off an interest-only mortgage can make financial sense, but it is clear a lot of older homeowners do not want to downsize.
"Equity release should be part of all conversations with older homeowners and advisers who can recommend specialist support can help older customers."
Kevin Hever, helper and adviser at Wolverhampton-based Cornerstone Financial, said: “I am not getting any more of these enquiries than normal.
"I would imagine there will be more in the future – I know at the start of the millennium they were quite popular, and there were quite a few offerings on interest-only, and criteria only got tightened up five or six years ago.
“The problem for these people, especially the older ones, is that with the rules on age and retirement tightened up. It makes things difficult for people of that age.”
simon.allin@ft.com
