If you have recently tried to secure an interest only mortgage for your clients you will know the steps you need to go through to demonstrate that they have a suitable strategy in place to repay the balance at the end of the term. But this wasn’t always the case and one in five homeowners have no means to repay their Interest Only Mortgage. For younger borrowers there is the option to convert to a capital repayment loan when they remortgage, but for older borrowers remortgage opportunities may be limited.
Over the next 30 years, 2.6 million interest only mortgages will be due for repayment, with an anticipated peak of £33bn worth of interest only mortgages due for maturity in 2032, and it is estimated that half will have a shortfall. What’s more, 70% of all interest inly mortgages are held by customers over 45.
So, what are the options?
While the scale of the problem seems extreme, there is a clear solution to tackle the issue of interest only mortgages held by older borrowers and this presents a significant opportunity for you.
The Equity Release opportunity
Homeowners over the age of 55 in England alone have nearly £1.28 trillion of equity in their houses and more are realising the benefits of releasing that equity, whether it is to pay off the balance of their interest only mortgage, lifestyle reasons or a combination of both.
In the first quarter of 2018 alone, £870m worth of equity was released by homeowners over 55 and £8.5 million is now being taken every day in lifetime mortgages, making this the fastest growing area of the mortgage market for the second year in a row.
Improving product choice
In response to this demand, the range of equity release products has grown by 25% year on year and the interest rates on products is falling, with the average rate now being 4.4%.
The most popular type of equity release products are lifetime mortgages and these products are improving all the time.
Available to clients over the age of 55, a lifetime mortgage enables an individual to borrow against the equity in their home, without the need to make monthly repayments. Instead, interest is typically ‘rolled up’ and added to the balance, which is usually repaid from the sale of the clients’ home when they die or enter long term care.
The funds can be released as a lump sum or in smaller payments as a drawdown facility to be used as and when they’re required and there is a ‘no negative equity’ guarantee so a client or their estate’s beneficiaries will never be liable to pay anything over the value of their home. A borrower can also opt to include ‘inheritance protection’ with some plans that will guarantee an agreed percentage of their homes’ value to be passed down, irrelevant of how much interest is owed.
Some lifetime mortgages now include the option to make some payments towards a loan to reduce their overall cost of interest, with flexible options to pay interest for part of the term or pay a portion of the interest throughout the period of the loan.
Marketing Later Life Lending to interest only clients
Lenders have already been writing to customers with interest only mortgages, but 70% have ignored contact to discuss options available when the loan is due to be repaid, so these clients are unlikely come to you.
You therefore need to be proactive in contacting your clients to discuss their options. Make it clear that you can offer impartial, professional advice to discuss all of the options that are available to them, which could include using existing savings or investments, downsizing or converting to a repayment mortgage, as well as Later Life Lending.
This could well be a sensitive topic for your clients and they might appreciate a frank discussion and some direction from a professional they can trust.
How can you get involved?
Equity Release is a specialist area with its own qualifications and separate permissions, so it is not a market that you can dip into.
At Brightstar, we have recently launched a partnership with Sentry Lifetime to provide brokers with a Later Life Lending service that gives you access to independent lifetime mortgage advice through a highly experienced team of FCA regulated professionals who are members of the Equity Release Council.
The partnership means that you can now offer a range of equity release solutions to your clients, even if you do not hold the relevant qualifications. The process is simple – just contact Brightstar with a client referral and earn a share of the proc fee upon completion. You will also have the peace of mind that Brightstar maintains a no cross-selling guarantee on all referrals.
If you would like to find out more about how Brightstar and its partnership with Sentry Lifetime can help you to identify the right later life lending solutions for your clients, visit https://brightstarhub.co.uk/services/later-life-lending/
FOR INTERMEDIARIES ONLY AND NOT INTENDED FOR THE GENERAL PUBLIC