Interest-Only Pressure Builds on Over 55s Homeowners

Up to one in 10 over-55s homeowners across the UK are still paying interest-only mortgages and facing the prospect of clearing their debt when the deal runs out, new research1 from retirement property experts Homewise shows.

Its independent research among over-55s paying mortgages found 10% of the 1.4 million over-55s homeowners who are still paying mortgages - the equivalent of 143,500 2households – have interest-only loans and while the majority are confident of clearing the debt substantial numbers fear they will not be able to.

The study by Homewise shows 17% of interest-only borrowers aged 55-plus – equivalent to 24,300 - admit they will be unable to clear the debt. The average amount owed by over-55s with interest-only mortgages is around £91,000 with one in seven owing more than £150,000.

Homewise, which offers the Home for Life Plan enabling over-60s to buy homes at discounts of up to 59% under a lifetime lease, is urging over-55s homeowners facing interest-only issues to start planning ahead.

The Council of Mortgage Lenders3 estimates that at end of 2015 there are around 1.7 million pure interest-only mortgages outstanding with another 500,000 part repayment and part interest-only loans.

That represents a major success by mortgage lenders and the Financial Conduct Authority which has campaigned since 2012 to help borrowers focus on repaying loans – the number of outstanding interest-only loans has been cut from 3.2 million in three years.

Mark Neal, Managing Director at Homewise, said: “The mortgage industry has made massive strides in tackling the interest-only issue and has helped borrowers to take action.

“The good news from our research is that the majority of over-55s who have interest-only loans have plans in place to ensure they can pay off the capital but there are still substantial numbers who do not appear to know what they will do.

“They have a range of options including selling their home and downsizing but that may not be suitable for all. The Home for Life plan can help by enabling over-60s to move to a new home under a lifetime lease and release money to clear interest-only debts.”

Homewise’s research shows 34% of over-55s plan to clear their interest-only mortgage with cash from savings and investments while 10% aim to use pension cash to clear the debt. Another 11% are banking on an inheritance.

The Home for Life Plan is a lifetime lease where those aged 60 or above can select a property to buy which is then purchased by Homewise at the full price. Customers will then buy a lifetime lease from Homewise typically at a discount rate of around 33%.

Legally, they are the lifetime owner of the property and can do as they wish – paint, wallpaper or put in a new kitchen. When that person dies the property will revert to Homewise but he or she can choose to leave an inheritance of up to 50% of the future of value of the home.