[cashinmattress]

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Over-65s are paying off average interest-only mortgages of £43,000 outlining the scale of the interest-only time-bomb and the need for solutions, analysis of customer data by equity release lender More 2 Life shows.

The lender is urging the Financial Services Authority – which is due to publish comprehensive research on the interest-only issue at the end of March – to force lenders to issue warning letters to customers.

It believes a system of Red, Amber and Green letters – modeled on the similar scheme for endowments – would help customers who do not have repayment plans to take action.

More 2 Life is making the call after customer analysis since launch found that more than four out of five customers taking out its Interest Choice Plan are using the money released to clear mortgage balances ahead of the fixed repayment date and switch to a lifetime mortgage without a fixed repayment date.

It found customers are taking out loan-to-value plans at an average of 22% despite being entitled to take a maximum average of 32%. The average amount released is £43,570.

Equity release lifetime mortgages enable customers to clear the capital owed ahead and to continue paying interest if they wish without having to sell their home or in extreme cases be repossessed.

Jon King, Managing Director of More 2 Life, said:

“The interest-only time bomb is purely and simply about the looming repayment dates for mortgages. Customers can pay the interest but they need to find substantial sums to clear the capital borrowed.

“The concern is that people hope for the best which is why regular warning letters from lenders will help concentrate customers’ minds. Lenders themselves already acknowledge it is a major issue and many are concerned.

“The FSA’s report in March may provide more data on how many customers do not have repayment plans but currently nobody has a clear picture of the issue. Red, amber and green letters would help provide that clarity and help customers.”

Banking in the UK over the past decade has been like schoolboys playing at double-dog dares, seeing who could lend out the biggest amount of money to the most unlikely to pay it back. [for a fee of course]. Or even perhaps like the Mortimer brothers dollar dare come bet on 'Trading Places'.
The article doesn't speak of the amount of over 65's, or if indeed it's BTL, but if you need to know why we're in the sh1tter, its stories like this.

This post has been edited by cashinmattress: 25 February 2013 - 03:05 PM

[Odysseus]

The solution seems quite clear to me.

Raise the outstanding amount owed to buy your house when the mortgage deal ends.

Or

Sell the house when the mortgage deal ends and use any available equity to rent in the private sector.

[EUBanana]

 Odysseus, on 25 February 2013 - 04:14 PM, said:

The solution seems quite clear to me.

Raise the outstanding amount owed to buy your house when the mortgage deal ends.

Or

Sell the house when the mortgage deal ends and use any available equity to rent in the private sector.

Unfortunately the government is too terrified of these voters to do that. The benefits of such a policy would also be lost on the wider, economically illiterate public too. Lose-lose.

[longtomsilver]

I have nothing but admiration for these 65+ year olds with debt hangovers and only hope you or I do the same with our own houses one day. After all you can't take it with you and owning a house outright at any time close to retirement is asking for a rinsing via care home surcharges and the like.

Bravo for SMI and means testing x

[RufflesTheGuineaPig]

Company that lends to people with outstanding interest-only mortgages they can't pay off encourages government to contact people with outstanding interest-only mortgages they can't pay off to encourage them to make plans by signing up with a company that lends to people with outstanding interest-only mortgages they can't pay off...

This post has been edited by RufflesTheGuineaPig: 25 February 2013 - 05:51 PM

[mikthe20]

 cashinmattress, on 25 February 2013 - 03:04 PM, said:

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Over-65s are paying off average interest-only mortgages of £43,000

Even financial journalists seem get this simple matter wrong. These people are obviously not paying anything off their mortgage. A simple solution to this idiocy would be simply for the authorities to define the term "mortgage" as being a loan which includes capital repayment or an alternative payment plan and exclude pure IO. But then if I was in power I'd also make it illegal to use the word "credit" for any form of debt. (I am aware what "mortgage" literally means). These simple linguistic changes would bring debt levels down very quickly IMO.

[Ah-so]

 mikthe20, on 25 February 2013 - 06:23 PM, said:

(I am aware what "mortgage" literally means).

For those that don't, it is a "death pledge" - a loan obligation that dies when either the loan is repaid or the collateral taken. It does not refer to the death of the borrower, although obviously the loan would still be due after his death, allowing the lender to be repaid from the estate of the deceased.

[peahead]

£43,000 at 65, average life expectancy of 87 and interest on the debt roughly doubling the debt every 11 years (not sure if this is right?!) - it would make that £43k cost about £172k if that's right, slightly more than the average house price.

Sounds like some people's inheritance has already been spent and the gov't may not have too many oldies able to pay the £75k care cap

[iamdamosuzuki]

I think everyone is being unfair about this, after all interest only mortgages were about the only option left after the misselling scandals over the years. It's like an endowment without the troublesome endow bit. Very sensible imo.

Marvellous. We should probably be having more of this to get the economy really firing on all cylinders.*






*Sorry I forgot about Student finance. It'll fill the gap nicely.

[Self Employed Youth]

These are MEW aren't they?

[MrPin]

It's like renting then, off the bank?

[bajista]

 Self Employed Youth, on 25 February 2013 - 07:24 PM, said:

These are MEW aren't they?

Some are, some aren't.

Some are mewing to pay for their final years and if they have no dependents, why not, you can't take it with you. In any case if it is all you have you'd be crazy not to even if you have dependents.

But it isn't all MEW

Some younger ones still have very elderly parents alive and have taken out mortgages in their 50s and will inherit enough to pay off ( parental care home fees aside)

And some have mewed but only to put up capital for their children in 20s and 30s so they can buy -so just early transfer of wealth- actually good tax planning too. [ though I don't approve of such propping up of the first time buyer market ]

Point is, overall statistics tell you very little as usual- shame government base all policy on the overall statistics....

[winkie]

 bajista, on 25 February 2013 - 07:43 PM, said:

Some are, some aren't.

Some are mewing to pay for their final years and if they have no dependents, why not, you can't take it with you. In any case if it is all you have you'd be crazy not to even if you have dependents.

But it isn't all MEW

Some younger ones still have very elderly parents alive and have taken out mortgages in their 50s and will inherit enough to pay off ( parental care home fees aside)

And some have mewed but only to put up capital for their children in 20s and 30s so they can buy -so just early transfer of wealth- actually good tax planning too. [ though I don't approve of such propping up of the first time buyer market ]

Point is, overall statistics tell you very little as usual- shame government base all policy on the overall statistics....

Normally you would require a regular income and a good credit history to borrow your equity.....to take it out, you have to prove you can afford to pay it back out of salary before retirement.......equity release is not for everyone.....and is expensive, mortgage brokers will be making more money on these schemes in the future.....at least once you have spent what is left of the house there will be no care home costs to pay for.

The banks and governments encouraged it with high house prices and falling annuities meaning elderly independence is becoming less common....so who will now be borrowing the money to support our elderly people that are too old, too tired or not fit enough to work with little income.

[interestrateripoff]

Isn't this a good way of avoiding losing the lot to care home fees? Just take out a lump sum and keep servicing the loan?

[workingatthepyramid]

feckless, clueless or playing the system whatever the excuse these scumbags are part of the problem

instead of red/amber/green they should use increasingly dark shades of brown