Interest-only 

Spicerhaart creates exit route for interest-only lenders

Spicerhaart creates exit route for interest-only lenders

Spicerhaart Corporate Sales has reviewed its interest-only mortgage offerings for lenders.

The firm, which offers asset management services to lenders, will now introduce lenders to later life specialists willing to buy up interest-only portfolios and transfer customers concerned onto a lifetime product of the same terms.

Mark Pilling, managing director at Spicerhaart Corporate Sales, said the move comes at a time when thousands of interest-only mortgage customers are approaching the end of their loans with no repayment plan in place.

He said: "These customers tend to be older, and as a result, lenders are understandably reluctant to take action - which could result in repossession- due to the reputational risk involved.

"That is where Spicerhaart Corporate Sales can help. We can offer a bespoke portfolio sales service to lenders who wish to sell a proportion of their portfolio of interest only loans that are both approaching and also gone past their maturity date."

Mr Pilling said the asset sale will recover the outstanding debt for the lender, mitigate any potential reputational risks and see the customer’s loan now “owned” by a specialist lifetime lender.

Mr Pilling said many lenders are ignoring the interest-only issue and letting borrowers continue to make payments after the end of the loan term, a strategy that brings its own challenges with the borrower effectively being out of contract.

He said: "While selling the property is an option, most people want to stay in their homes so need an alternative and many lenders do not have the expertise to be able to offer the right solution."

Mr Pilling suggested the most successful lenders are engaging with professional third parties who look after their interest-only book for them.

In March 2018, the Financial Conduct Authority removed a regulatory barrier to allow 'retirement interest-only mortgages' for older customers, in which the loan would only be repaid on a specified life event such as the customer's death or move into residential care - meaning retirement interest-only mortgages are now excluded from the definition of a lifetime mortgage. 

Gareth Lowman, associate director at SPF Private Clients, said while it is a proactive position for an asset management firm to deal with borrowers of this ilk, the one size policy could be of concern as a lifetime mortgage will be right for some but not all.

He said: "Some lifetime mortgages are paid back with compound interest meaning that in the longer term, the debt owed can grow rapidly.  This can affect the value of your estate and the level of inheritance you could pass on.

"Furthermore, should the borrower wish to repay or end the plan early, there may be significant financial penalties to do so. Also the borrowers entitlement to certain state benefits may be affected."

Mr Lowman said with the environment around interest-only and later life lending changing, there may a better, more suitable route forward  - something that potentially was not in place five or even two years ago.