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Is equity release the answer to maturing Interest-only mortgages?


Borrowers who took out interest-only mortgages in the last two decades have been bombarded with headlines recently informing them that their mortgages are due to mature and repayment of any remaining capital will be due in 2020. 

If you have an interest-only mortgage, but have no way to repay the capital, downsizing and letting go of your beloved property to defuse the interest-only ‘ticking time-bomb’ can be rather daunting. An alternative option for paying off capital, is converting your mortgage to a lifetime mortgage. A lifetime mortgage is a secured loan, allowing borrowers to release up to 50% of the equity from their home. The sum released will be taken out of the value of the property, with interest, when the home is either sold or the homeowner has passed away.

By choosing this path, the prospect of repossession for payment arrears is no longer a threat as there are no longer any monthly repayments.  A lifetime mortgage also does not involve relinquishing any legal ownership of a property, which means borrowers can remain living in their home for the rest of their life.  In order to protect the financial safety of borrowers, the Equity Release Council (ERC) set standards and safeguards within the industry to reassure consumers. The strict code of conduct means that Equity Release customers will never have to leave their home as long as it is their main residence and that they benefit from a ‘no negative equity’ guarantee, which means  borrowers will never owe more than the value of their home, resulting in no debt being left in their estate.

Homeowners withdrew £508million in equity release products in the first six months of this year, a rise of 12 per cent since 2012. However, it is important to remember that this solution isn’t necessarily appropriate for everyone facing repayments. It will depend on your age, the amount of equity you have in your property and the amount outstanding on your interest-only mortgage. The majority of the equity release providers will only lend on your main residence. However, there are a couple of providers that offer a scheme for second homes and rental properties.

If you are facing capital repayments, seeking financial advice will help find the best source for the finance. Currently, over 80,000 mortgage borrowers say they intend to use their pension to clear their mortgage debt, which will severely impact their retirement, so make sure you know all the facts before rushing down any path.

If you have any questions regarding equity release and your retirement income, please call Retirement and Investment Solutions on 01489 878300 or email This email address is being protected from spambots. You need JavaScript enabled to view it. .

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