Interest-free mortgage time bomb for 20,000 over 65s


Around 20,000 borrowers with interest rate mortgages maturing this year are aged 65 and over, an analysis shows.

More than 40,000 borrowers with regulated-rate mortgages will reach maturity this year, owing an average of £104,000, according to trade body UK Finance.

But almost half of these homeowners are over 65 with more than £100,000 left on their mortgage.

It is the first of three significant waves of loan maturities as estimated by the Financial Conduct Authority (FCA).

Borrowers in this first wave of maturities typically took out the loan in the late 1980s or early 1990s, secured by an endowment policy, ISA, or annuity.

A total of around 60,000 interest-free mortgages will mature this year, including the 41,000 regulated contracts and 19,000 unregulated contracts (mortgages as a product were not regulated until 2004).

Strong equity position

According to UK Finance, although these homeowners owe more than £100,000, they have a low current loan-to-value (LTV) and are therefore in a strong equity position.

Almost half have less than 25% LTV remaining and three quarters have less than 50%.

Borrowers typically have equity of £387,000.

It is expected that the vast majority of homeowners will pay back the outstanding balance on time or in full within a few months.

The high equity position gives borrowers who are unable to repay more options, James Tatch, Principal, Analytics at UK Finance, wrote in a blog.

But he said: “Of course, the higher risks will be outside – those with higher LTVs and/or lower absolute amounts of equity.

“Understanding the risks and options within interest arrears allows lenders to segment their books and prioritize and personalize their outreach programs accordingly.”

In fact, according to UK Finance, the first wave of interest rate loans peaked in terms of maturities in 2017 and 2018.

And because of lenders’ proactive actions, fewer bonds will mature this year than originally projected for 2012.

Tatch said the mortgage industry will continue to work with interest rate customers in 2020, adding that the sooner customers speak to their lender, the more options they have.

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