Lenders told to relax interest-only mortgage rules

Lenders told to relax interest-only mortgage rules

Advisers are asking lenders to be more flexible with older borrowers who are facing interest-only mortgage repayment deadlines.

Research from Key Partnerships showed 74 per cent of advisers think lenders should relax rules in this circumstance, since increasing numbers of older clients face capital repayment issues.

More than three quarters of advisers polled said traditional lenders need to develop products specifically for customers with interest-only deadlines and 79 per cent argue traditional lenders have been slow to address the problem.

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More than half of advisers said they regularly recommend equity release in these circumstances, but 56 per cent are concerned they don't understand the market.

UK Finance, formerly known as the Council of Mortgage Lenders, data showed more than 300,000 borrowers have interest-only loans worth more than 75 per cent of their homes. 

Will Hale, chief executive of Key Retirement, said some banks including Santander and Co-op have agreed partnerships with equity release lenders, but some lenders are failing to address the issue.

He said: "We are seeing significant numbers of customers of equity release customers who need to pay off interest-only loans and are using their property wealth to ensure they can stay in their home.

"Mortgage advisers clearly are seeing the same high numbers of inquiries and are becoming frustrated when dealing with some lenders on finding solutions for customers."

David Hollingworth, ‎associate director of communications at London & Country Mortgages, said while there was a gradual change in the market and more people were lending beyond retirement, lenders expect to see evidence of post retirement income.

He said: "Even where that is good they will often cap at 70 or 75.

"There are limitations, and sometimes people run into a crunch and can't refinance.

"Equity release can be an option for those coming to the end of an interest-only mortgage and struggling with affordability, but they can also find they are limited to a proportion of the property's value depending on age."

Mike Richards, director at Mortgage Concepts Associates in London, said a two-tier system would make it easier for those people who are coming to the end of an interest-only mortgage but are too young to be able to pay it off with equity release.

He said: "The lenders should look to extending the interest-only term into retirement for a little in those cases."