Struggling to pay off your interest-only mortgage? Maybe Homewise can help.
If you’re facing an uphill battle to pay off an interest-only mortgage, you’re not alone.
According to figures released by the Financial Conduct Authority, roughly 1.8 million homeowners in the UK currently have outstanding interest-only mortgages, and many don’t have an adequate strategy to repay them.
The FCA estimates that 600,000 borrowers will see their interest-only mortgages mature in 2020, and around half of these customers lack the funds to repay. Worryingly, around a third of those struggling face a shortfall of £50,000 or more. The average amount owed is around £91,000, with one in seven owing more than £150,000.
What you might not know is that the Home for Life Plan is an option for people looking to repay an interest-only mortgage. To find out more, call us now on 0800 043 4488 or click here to send us a message.
The good news is that the number of borrowers finding themselves in this situation has dropped in recent years.
In 2012, when the FCA first began campaigning on the issue, the number of interest-only mortgage customers facing a shortfall stood at 3.2 million. That number has been significantly reduced today thanks partly to the FCA putting pressure on lenders to provide clearer information on interest-only mortgage products, along with better advice and support for vulnerable customers. But that still leaves many homeowners facing difficult choices as repayment deadlines loom.
For those without a financial safety net – in the form of private savings and investments, an ample pension pot or an inheritance, for example – the sharp end of an interest-only mortgage can be a daunting place.
A common solution is to unlock cash from the value of your property by taking out an equity release plan. Many such plans are available on the market, but as Mark Neal, Managing Director of Homewise explains, they offer no real guarantee of peace of mind in the long term:
“With equity release you’re not clearing debt, you’re just moving it,” said Mark. “You are either required to make monthly repayments, or charged compound interest which continues to eat away at the equity in your property. So while equity release can offer an immediate fix for some interest-only mortgage customers, in some ways it’s just postponing the problem.”
The big difference between equity release and the Homewise Home For Life Plan, says Mark, is that Homewise customers are able to clear all debts and regain total control of their finances. Because the Home for Life Plan is not a mortgage or a conventional equity release plan, there are no ongoing payments to worry about.
“With the Home for Life Plan, customers over the age of 60 choose a new property for themselves, which Homewise purchases at full market price,” explains Mark. “The customer then buys a lifetime lease on the property from Homewise at a significant discount, which we calculate based on the customer’s age and other factors. A typical discount is around 33%, but it can be as high as 59%. With savings that big on the cost of their property the customer has an increased budget, which is very useful if they have an interest-only mortgage coming up for maturity.”
For customers who want even more control of their finances, Homewise offers the option to safeguard up to 50% of the property’s value as an inheritance. In the event that you pass away or move into permanent care, this share is returned to you or your estate. Furthermore, while living in the property you enjoy all the same rights as a homeowner who purchases at full market price.
“Legally the customer is owner of the property for the duration of their lifetime, so they are entitled to treat the house as their own,” says Mark. “That means you’re free to repaint, wallpaper or put in a new kitchen if you wish. It’s differences like that which we feel really add to the quality of people’s lives.”
Are you over 60 and need help meeting the terms of your interest-only mortgage? Contact us today to find out more about how Homewise can help.