Mortgage rates – WARNING over interest only time-bomb affecting homeowners over 50

Vast amounts of pensioners are paying off interest only mortgages, a risky option for homeowners that could leave them with an unaffordable lump sum.

It warns vulnerable pensioners who do not have money to pay off the sum could be left unable to pay for their house. 

Interest only loans mean homeowners pay only the interest the mortgage accrues. 

This form of borrowing means the homeowner eventually has to start paying back interest and the sum of the mortgage.

This means they will be hit with a big increase in payment – which pensioners may well not be prepared for.

New research from equity release lender More 2 Life found that 41 per cent of over 65-year-olds in the UK with an outstanding mortgage have an interest-only mortgage.

Thirty-seven per cent of 65 to 74-year-olds with a mortgage have an interest-only mortgage – rising to more than half, 56 per cent, of 75 to 84-year-olds. 

Individuals who do not have a reliable financial plan to pay off the capital lump sum due at the end of the term on their interest-only mortgage, could find themselves facing challenging circumstances in retirement. 

The research claims there is a dire need for mainstream mortgage lenders to help their customers devise an “appropriate course to take in terms of borrowing in retirement.” 

Dave Harris, Managing Director at More 2 Life, commented: “This new research shows that the number of interest-only mortgages among retirees will continue to be an issue as these begin to mature in the next decade.  

“The demand for borrowing in later life on this scale could double the size of the equity release market this year alone.  

“For many of these individuals without an alternative capital repayment strategy, lifetime mortgages are the best solution for their finances.”

He claimed that lenders should be more engaged with the market by encouraging more partnerships between themselves and equity release specialists. 

He added: “This provides customers with a greater number of options and would also ensure they are making informed financial decisions and given a seamless transition option from their current mortgage lender.” 

Property news that the number of Britons buying houses with small deposits is on the rise should inspire first-time buyers.

Buyers with small deposits are dominating the market, as the number of buyers with large amounts of cash to put down is shrinking.