|But on with the More 2 Life Press Release:|
– More 2 Life urges FSA to make lenders issue warning letters to interest-only borrowers
– Interest Choice Plan customers can choose to pay interest and withdraw funds
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 innovative 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.”
More 2 Life’s own analysis shows up to 103,000 over-65 households are paying mortgages with around 81,000 households in the 65-74 age group and 22,000 in over-75 age groups. In total they spend around £1.36 billion a year.
Its Interest Choice Plan, which was designed in response to demand from equity release customers who are still working or need to clear interest-only mortgages enables customers to choose the level of interest they pay on loans and the term.
They can also fix their interest rate and have access to a lifetime drawdown facility.
Customers can choose to pay all or part of the monthly interest on their loan and choose how much to withdraw. Those who do not take the whole loan-to-value can make further withdrawals.
The interest rate of 6.08% monthly is fixed for life and interest payments are subject to a £25 minimum. Clients do not have to choose a term to pay the interest and can stop free of charge at any time. On further withdrawals rates are fixed on the rate applicable then.