An ‘interest-only mortgage crunch’ could see over-55s looking to equity release as a means to repay their outstanding mortgages, according to research by OneFamily.
Its research found that 28% of mortgage holders aged 55 or over have an interest-only mortgage. 40% of this group will see their mortgage come to term within the next five years.
11% of this group will have to pay off their remaining interest-only mortgage or find an alternative arrangement within the next year.
OneFamily says that while many will have planned for this eventuality, the Covid-19 outbreak is weighing heavily on personal finances and savings.
One in five of those surveyed said that recent news around the virus, and its potential impact on their finances and lifestyle, would mean that they are more likely to release equity from their properties.
More than 60,000 over 55s with an interest-only mortgage are expected to consider equity release within the next five years. Paying off an existing mortgage is the key reason stated by one in four (24%) of those surveyed, who said that at least part of the cash released was used for this purpose.
Paul Bridgwater, OneFamily’s head of lending, said: “It’s a potential perfect storm for holders of interest-only mortgages to see them coming to term at a time when there’s likely to be pressure on their finances. For example, they may now need the assets that they’d allocated to the repayment of their mortgage to help other family members who are struggling.
“Additionally, their investments could have devalued following the stock market crash or simply not performed as expected. Uncertainty in the housing market may mean that property assets that they were planning to realise could also have dropped in value, so the reality is that mortgagors could need to look to an alternative means of financing to cover the shortfall.
“As ever, financial advice will be crucial in helping this group to find their way through these difficult issues. Equity release is one solution that might help homeowners to overcome these challenges.”