As many as 40,000 interest-only mortgages are set to be called in during 2016, kicking off a new wave of maturities expected to run until 2020.
The high level of mortgages reaching maturity has sparked a rise in the total value of equity release lending so far in 2016 as retired homeowners take out the loans to avoid having to sell their property.
The total value of equity release loans is up by 21 per cent in the first quarter to a record £393.9m, figures from the Equity Release Council show.
“One of the immediate factors driving the market is the interest-only crisis with large numbers of retired homeowners who could lose their properties because they cannot afford to pay off their mortgages," said Dean Mirfin, technical director at retirement planning specialist Key Retirement. “No one really knows the scale of shortfalls for repayment or how many homeowners have no repayment method in place at all."
Research carried out by the Financial Conduct Authority (FCA) and Experian in 2013 found that around 600,000 borrowers will see their mortgage mature before the end of the decade.
“This first wave is the most worrying,” said Mirfin. “We’ve never before seen these levels of people coming to payment maturity with no repayment plan in place.”
Research shows homeowners are tapping into their housing wealth to make mortgage repayments, supplement their monthly income, make home improvements, and support younger family members.
Britain’s property wealth now totals £1.3 trillion, exceeding pension savings for the majority of retired households, and is being increasingly unlocked by retirees to top up their income.
Equity release lending, obtaining a lump sum or a steady stream of income from the value of property which is then repaid at a later stage, has now reached pre-crisis levels.
“This is part of a trend that’s being going on for the last few years. We’re now back to a level of what it was pre-crash and it will continue to increase,” said Nigel Waterson, chairman of the Equity Release Council.
Britain’s banks are being warned they could face a reputational crisis if they do not offer adequate help to the high numbers of mortgage customers that are set to hit difficulties when their mortgage matures.
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“The banks have facilitated this situation and should now help people to find a solution," said Mirfin. “It’s not a question of mis-selling but banks should be helping their customers.”
The FCA has previously instructed lenders to write to mortgage holders and ask if they have a repayment method in place for when their loan hits maturity but there are concerns that those with no plans are less likely to respond and will face eviction.