The 80’s and 90’s have a lot to answer for. No, not shoulder pads, Maradona’s “Hand of God” or Gazza’s tears; but the thousands of interest only or endowment backed mortgages which were sold at the time. I guess it was testament to the era that borrowers were encouraged down this route with endowments offering high projected bonuses and a cash surplus in addition to the amount required to pay the loan. These projections are fine in a high-interest, high-inflation environment; but, a bit like my Dad’s bright red Ford Capri, what looks good on face value doesn’t look as good when it breaks down 3 miles south of Sheffield on the hard shoulder with two screaming toddlers in the back.
Thousands of borrowers on these interest-only mortgages are approaching the end of term with huge shortfalls, leaving equity release as one of the few viable options for repayment.
You will often read about the Pension time bomb, which has been ticking away for years. Talk of pension deficits, rising retirement ages and pensioner poverty dominate the press. But when it comes to the problems facing the interest-only mortgage customers of years gone by, many have a tendency to bury their heads in the sand.
We are less familiar with this issue because maybe the national press don’t like looking at the solution. They would prefer to focus on the nasty bank that wants its money back or the endowment mis-selling scandal, or is it because the mortgage brokers don’t want to have this difficult conversation because they assume there is no solution?
At Age Partnership we have seen a rising number of enquiries from clients who are approaching us with a mortgage shortfall over the past two years. These shortfalls vary in size but a shortfall is a problem if you have no repayment vehicle (or a Capri).
So what are the options for your clients?
Pay off the loan with funds from elsewhere
We find that people with shortfalls don’t often have savings and the thought of downsizing to most is unthinkable having lived in their home for many years.
Maybe one of the options is to release equity or switch to an interest only lifetime mortgage. This way you at least get to live in your home foe the rest of your life.
Fortunately, and this is something we can be thankful to the 80’s and 90’s for, houses prices in the main have risen. Most clients will have equity in their home and they can make this equity work for them, asset rich and cash poor is ever more prevalent here.