I recently heard from UK Finance, the collective voice for the banking and finance industry and a number of mortgage lenders about how they are working to help raise awareness of the options available to constituents who are coming to the end of their interest only mortgages.
This has appeared in my casework a little more frequently over the past few months as around 3 in 100 residents with mortgages in my constituency have interest only plans.
With an interest only mortgage the monthly payments only cover the cost of interest on the amount borrowed and not repaying the full mortgage amount borrowed. This means that at the end of the mortgage term, the amount borrowed (the capital) needs to be repaid in full.
Mortgage lenders are committed to helping interest-only borrowers find affordable repayment solutions. There are a range of interest only customers and since March 2018 lenders have been able to offer a new style of retirement interest only mortgage.
While the number of interest only mortgages has halved since 2012 nearly two million interest only mortgage holders are due to repay their loans over the next fifteen years. Lenders are in regular contact with borrowers in the run up to maturity however they are not always able to reach affected customers and understand their payments.
I would encourage any constituent with an investment only mortgage to have a conversation with their lender to explore what potential options are available. Major financial decisions can be stressful particularly when they involve your home, but the sooner you engage with your lender the better.
Here are a few of the options you may want to discuss with your lender:
Switching to a full repayment mortgage (or part repayment and part interest only) You might be able to afford to move to a capital and interest mortgage where you pay off the mortgage gradually each monthly repayment. This way there is no amount left to repay once the mortgage term ends.
Making overpayments/larger repayments. If you can afford to make larger payments it can reduce the amount you owe and the amount of interest you will repay. This can be done through regular overpayments or lump sums.
Switching to a lower interest rate. You may be able to switch rates and any savings you make could be used to pay off the mortgage. Other new mortgage products may also be available.
Retirement interest-only mortgages. A new type of loan available since 2018 where you agree to continue paying monthly interest until you pass away, go into care or sell the property. The lump sum is then paid to the lender from the sale proceeds. Not all lenders offer this solution but it may be worthwhile asking.
Lifetime mortgages/equity release. If you hold enough equity in your property and meet the age threshold you may be eligible for a lifetime mortgage. The interest compounds over the course of the loan and the balance of the loan is paid from the proceeds of the sale after you pass away or move into long term care.
For more information speak with your lender or some of the charities below
Money Advice Service: 0800 138 7777
Citizens Advice Bureau: 01827 305950
Stepchange: 0800 027 4536
If you have a complaint that you cannot resolve with your lender the Financial Ombudsman Service may also be able to help on 0300 123 9123