According to recently released data, there are now more Britons using the equity from their homes to repay interest-only mortgages taken out prior to the financial crisis.
A report produced by Key Retirement suggests that many homeowners are having to turn to equity release plans as they are unable to secure a repayment mortgage for the outstanding capital. Over 20% of those who took out equity release plans used the cash to pay off the home loans, according to the data. Equity release is generally taken out by older home owners, who sell a percentage, or all, of their home in exchange for either a regular income or a cash lump sum. The money borrowed is against the value of the property, and is repaid when the borrower either moves into care or dies.
Estimates suggest that there are approximately 600,000 people who have interest only mortgages, which are due to mature by 2020. Borrowers have repaid interest only during the term, which means that the capital is payable at the end of the term. Many borrowers have no plan in place to repay the outstanding amount.
As many of the homeowners are approaching, or are in retirement, they may find it difficult to find a lender who will offer them a mortgage, although a CeMAP qualified mortgage adviser may be able to help with this. The average amount of equity released is £73,610, while in London the amount is £117,000.
