A ‘mortgage time bomb’ is looming for people aged over 50 with interest-only mortgages and who had hoped that an endowment would clear the lump sum, typically after 25 years.
Some million such borrowers who are rapidly reaching the end of the mortgage period say the endowment will fall short.
According to Saga, one quarter of this group, with an average mortgage debt of £49,000, may need to sell their home.
The crisis has been exacerbated by this year’s Mortgage Market Review.
Previously, older borrowers – particularly those still in work – could switch to a repayment mortgage. But many have been prevented from doing so by the new ‘affordability’ rules introduced by MMR.
For such people, the stark reality is that they will have to sell, and quite soon.
For others, selling is not the only solution: some borrowers will dig into their savings, investments and pensions, but this may only tide them over the short term and they will have to sell eventually.
Others, however, will take out so-called ‘lifetime mortgages’ – described by some experts as the solution of last resort.
Santander has become the first bank to say it will offer lifetime mortgages, effectively a form of equity release, which will allow borrowers to stay in their homes, continuing to pay monthly interest, until the day they die.
The bank said it is one option to be considered, in order to save families from eviction or being forced to sell up.
Other banks are said to be following Santander into the lifetime mortgages market.
However, a lifetime mortgage could mean their children having to forfeit their inheritance, with the family home being sold to repay the debt.
Written by: ROSALIND RENSHAW | November 7, 2014