Regardless, when we look forward in the equity release industry, we can make a few resolutions that may indeed make a difference further down the line. On top of my wishlist for 2018 is making more noise about the interest-only timebomb and how the lifetime mortgage could be a way to defuse the situation.
The interest-only timebomb is now firmly part of the vocabulary of every person working in the mortgage market. We are, or rather we all should be, well versed on the repayment fiasco that could well be upon us.
The loan-to-value ratios that many eager customers took without any real idea how they would make repayment would never be offered today, but that doesn’t help those people who need a repayment strategy now. And, unfortunately, there are millions who need help immediately.
The Council of Mortgage Lenders claims that as many as a fifth of all outstanding mortgages are interest only, but more importantly nearly two million people who hold these plans are only paying off the interest and not making any headway in repaying the capital.
The Financial Conduct Authority (FCA) has an even bleaker outlook, as it claims nearly half (48%) of people who have an interest-only mortgage don’t realise how big their shortfall is and could be staring at serious financial difficulty just before they plan to retire.
What’s more, thanks to the impact of the Mortgage Market Review and lenders reluctance to approve traditional mortgage lending into later life, downsizing can be one of the only options. But what about people who don’t want to or indeed cannot downsize?
For those that are approaching repayment and do not wish to sell up and move, equity release could be ideally positioned to help put them firmly back on the track to a more comfortable retirement.
The modern equity release market has evolved and adapted to the needs and requirements of the retired, and those who face a shortfall could tap into their housing wealth to meet their final repayment – all without ever having to move or make repayments!
There are of course lots of benefits to downsizing. For some, moving into a more manageable property surely being top of the pile. However, the downsides to downsizing are obvious. First and foremost, leaving the comfortable surroundings of your home to move somewhere completely alien, often far from friends and family, can have a serious emotional strain on family life.
That’s not to mention the pure cost of downsizing, which many calculate as averaging near on £10,000, even higher in many parts of the country. What’s more, other than relaxing after a life at work, seeing family and helping with youngsters is often the main priority for retiring grandparents – so downsizing is rarely a priority.
For these people, a lifetime mortgage could be the cure to their repayment woes. Not only will they not need to pack up and downsize, but they can also clear their interest only debt while not needing to make any immediate repayments.
Exploring all the alternatives
With millions of homeowners facing financial crisis at the worst possible time, all alternatives need to be explored. Of course, equity release is not right for everyone, and many people will still prefer to downsize.
But the simple fact is that downsizing will never be the most popular option, as the older we get the more stressful and difficult selling up becomes. Ultimately, thousands, perhaps even millions, of homeowners will be looking at an alternate repayment strategy – and it seems to me that equity release could be that alternative.
So, with a fresh year ahead of us let’s tell the wider market and the general public that the lifetime mortgage is here to defuse the bomb.
Only by banging this drum loud and often will we have the success I know this market can have.
Yes, high street lenders are now taking us seriously – Nationwide’s entrance has pushed us toward more mainstream acceptance – but we need a real domino effect.
Only when the man on the street knows equity release inside out will we truly become a force in the broader mortgage market, but tackling the repayment crisis attached to interest-only mortgages will certainly do equity release no harm.
Andrea Rozario is chief corporate officer at Bower Retirement