More options for interest-only borrowers as homeowners use equity release to pay off mortgages
New figures from Retirement Advantage reveal that paying off an existing mortgage was one of the most popular reasons for taking out equity release in 2017. The findings come hot on the heels of the FCA highlighting the need for interest-only mortgage holders to address how they will pay off their lump sum at the end of their loans.
According to Retirement Advantage’s data, more than one in four customers (27%) tapped into their property’s wealth to clear an existing mortgage. This was second only to the nearly one in three (30%) who used equity release to fund home or garden improvements. Elsewhere, just under one in five (18%) customers used equity release to consolidate unsecured debts.
According to the FCA, many borrowers holding interest-only loans – which make up nearly a fifth of all mortgages – may not have plans in place to pay off the existing balance at the end of their mortgage term.
Alice Watson, Head of Product and Marketing at Retirement Advantage, said:
“While the customers who are using equity release to pay off mortgage debt may be on either interest-only or repayment mortgages, the sheer popularity of using equity release for this reason reinforces the fact that debt in later years is becoming the norm. Recognising this, we are seeing people are increasingly comfortable with using the wealth in their property to help clear what they owe when they retire.
“Innovation and product development within the sector means that over-55s can access products which behave in a similar way as mainstream mortgages. The ability to pay off the interest, and even the capital, provides the flexibility that customers are familiar with, and the adoption of other mainstream product features, such as fixed early repayment charges, means that equity release could be a sensible solution for some homeowners.
“What the FCA referenced recently is the potential for products such as equity release to play a bigger part in future as the bulk of interest-only mortgages mature. This highlights the importance of advisers taking a holistic view of all assets when giving advice to those at, or approaching, retirement.”