Lifetime mortgage option for struggling interest-only borrowers
The report said lenders offering extensions to the mortgage term end should consider whether this constituted a lifetime mortgage. If so, the lender would have to enter into a new mortgage contract with the customer in line with equity release regulation.
Just Retirement group external affairs and customer insight director Stephen Lowe said borrowers taking out a lifetime mortgage needed independent advice, legal advice and a product which complied with Equity Release Council standards.
He continued: “I don’t think someone can just be sent a lot of new paperwork. They need should go through a regulated advice process.”
Most lenders operating in the equity release market were specialist companies from an insurance background, he added.
“The participants in the market tend to be specialists who have very strong risk management and underwriting skills. However, if you add up all the potential customers there is probably a lack of supply. I hope this will introduce more lenders into the equity release market.”
Age Partnership equity release technical manager Simon Chalk said the regulatory burden was likely to scare off high street lenders from converting interest-only to lifetime mortgages.
He said: “This is a problem which has been brewing for a long time and it is starting to manifest itself in enquiries for equity release.
“My feeling is most lenders will not have the appetite to offer long-term extensions – they are more likely to offer short-term extensions while exploring other options.
“This will be a great opportunity for professional advisers.”
In March, ERC chairman Nigel Waterson told Mortgage Solutions equity release could be the solution to the country’s interest-only headache.