Up to a million people do not have arrangements to pay off the debt accrued from interest-only mortgages. What has been called the interest-only time bomb could leave 3.3 million homeowners in serious financial difficulty once the term ends, with many unable to repay the capital.
The interest-only time bomb was triggered during the 1980s and 1990s when millions of interest-only mortgages were withdrawn. Many schemes were backed by insubstantial endowment plans, and now a study by the Citizens Advice Bureau makes the claim 3.3 million homeowners (up to 500,000 more than initially thought) have an interest-only mortgage.
It’s estimated by 2020 some 600,000 interest-only loans will reach the end of their term, creating a potential crisis where thousands of borrowers will be unable to repay their debts. It is believed half of this figure may struggle to pay the money back, leaving them trapped as “mortgage prisoners”.
Equity release has provided many retirees with a lifeline. Its benefits are increasingly apparent in the UK housing market, and it has been revealed the number of homeowners who are using equity release to pay off interest-only loans has tripled. This is in the aftermath of tougher mortgage rules, which were introduced by the government in 2014.
Services such as Which Equity Release provide a free search of the marketplace so retirees can compare rates from industry leaders. The service also offers a free calculation tool for retirees to find the deal which best suits their circumstances. They are guaranteed a service which allows them to speak to fully qualified professionals, and one which is fully regulated by the Equity Release Council.
Equity release was once considered a risky choice for retirees, but is now being championed as the solution to the interest-only time bomb. It not only grants funds to solve debt worries, but allows individuals to stay in a home they may have lived in for decades. The interest-only time bomb has forced many to leave their homes, causing emotional distress along with the stress and burden of financial difficulties.
Compared to other forms of finance, equity release can help retirees pay off their mortgage, and leave significant funds left to provide money for home improvements, holidays, university fees, or a new car. Furthermore, the average pension pot is £25,000, according to the Pensions Regulator in 2013/2014. Equity release offers 85% more in initial drawdown, and 176% more in home reversion, providing a cash lump sum which can clear debts immediately. As a result, equity release is now seen as a secure method to acquire funds.
Options available to them include a lifetime mortgage and home reversion plan. The former allows homeowners to release up to 50% of the value of their property (dependent on age), and the latter allows the individual to sell part, or all, of their home in exchange for a tax-free tax cash lump sum.
Services such as Which Equity Release allow retirees to capitalise on these benefits. Debts can be wiped out, retirees can continue living in their homes, and the threat of the interest-only time bomb is nullified. As the UK market becomes aware of the power of equity release, many more will be able to enjoy their retirements to the full.
http://www.whichequityrelease.co.uk/
Alex Morris
Piccadilly House, 49 Piccadilly, Manchester, M1 2AP
03333 447778 — [email protected] - @WhichEquityRelease