Mortgage holders are likely to be met by a so-called “interest-only mortgage crunch” which could leave Britons in a bind, according to new research. The study, undertaken by OneFamily, surveyed 2000 people to gain further insight into mortgage arrangements. It revealed 28 percent of mortgage holders aged 55 or over currently possess an interest-only mortgage.
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With 40 percent of this group set to finish their term in the next five years, complications are likely to ensue.
The remaining value of an interest-only mortgage has to be paid off by 11 percent of people within the next year, or an alternative arrangement found.
This could create pressures for over 55s, particularly amid the coronavirus crisis.
The study also found more than 60,000 people over 55 with an interest-on mortgage will consider equity release in the next five years.
Equity release is a way to unlock the value of a property to turn into a cash lump sum to use for other purposes.
Traditionally Britons must be 55 or over in order to qualify to use this method.
While equity release is not considered as a solution to financial difficulties, especially during the coronavirus crisis, it may provide extra assistance to those who need it.
In April, equity release products saw a reduction due to the financial effects of lockdown.
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As the property market remained all but suspended, lenders seemed to appear more reluctant to offer products to Britons.
However, as the market returns to some sense of normalcy, equity release could be suitable for many mortgage holders.
Equity release has proved a popular option for many mortgage holders in recent months.
The impact of lockdown has seen lump sum equity release plans account for 61.2 percent of plans across April and May according to the Equity Release Supermarket.
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Many borrowers are attempting to gain additional financial support, and this is seen as a secure way of doing so.
Paul Bridgwater, head of lending proposition at OneFamily commented on the findings.
He 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.
“They may now need the assets that they’d allocated to the repayment of their mortgage to help other family members who are struggling.
“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.”
The property market was drastically affected by the COVID-19 crisis, with mortgage products pulled, transactions stopped, and conveyancing halted.
However, it is hoped the recovery will be swift to return the climate back to normal.
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