Legal & General Home Finance has announced a five-year partnership with Virgin Money to address the "interest-only shortfall".
The retirement lender will offer its lifetime mortgage product range to those Virgin Money interest-only customers approaching the end of their loan term and aged 55 and over.
A spokesperson for Legal & General said the arrangement will see the lender offer its lifetime mortgage range directly to 20 per cent of the UK’s interest-only mortgage customers and is part of their wider strategy to improve customer access to retirement lending solutions.
In January, the FCA reported 1.67m interest-only and part capital payment mortgages were outstanding in the UK and warned shortfalls in repayment plans could lead to borrowers being unable to meet demands for repayment as their interest-only borrowing terms come to an end.
Steve Ellis, chief executive at Legal & General Home Finance, said solving the interest-only challenge was just one area where lifetime mortgages are a potentially transformative solution for the lives of UK borrowers.
He added: "Britain’s over-55s are currently sitting on over £1trn of property wealth – what could that money do for retirement outcomes, our housing market, and even our economy?
"Lifetime mortgages are already having a hugely positive impact on our society, and at Legal & General we are committed to raising awareness about the transformative effect these products could have for many of Britain’s retirees."
Andrew Asaam, director of mortgages at Virgin Money said: "We are delighted to partner with Legal & General to offer choice and peace of mind to a number of our interest only end of term customers.
"Their lifetime mortgage range provides excellent options to help customers manage their finances effectively, including individuals who might be interested in accessing their property wealth to improve their standard of living in later life."
Virgin Money customers will also have access to Legal & General’s optional payment lifetime mortgage, launched in April and specifically designed for interest-only borrowers without the requirement to pass affordability criteria.
Under the optional payment lifetime mortgage, Legal and General allow customers to pay some, or all, of the monthly interest and if interest payments are stopped they can still remain in their home for life.
Alan Chan, director at IFS Wealth & Pensions, said the move was a great initiative and would be very welcomed by the industry to help manage the ticking time bomb issue of interest-only mortgages - but it is not without its shortfalls.
He said: "It is the first step in the right direction and will buy more time for borrowers until they decide what is best for them and their family.
"However I can not help but feel that it is akin to taking paracetamol to relieve pain - it may relieve the symptoms but it does not actually solve the issue by tackling the root cause.