Equity Release/Lifetime mortgages are an option that many in this position are turning to.
More than 11,000 families are at risk of losing their homes this year after being trapped on interest-only mortgages they cannot afford to repay.
New figures reveal that more than 80,000 interest only mortgages will come to the end of their term in the next 12 months – but more than one in eight of these borrowers will have no way to pay back the remaining debt they owe to the bank.
Around 11,200 individuals face throwing themselves on the mercy of their banks because they have not been able to repay the capital of the loan either because investments they planned to pay off the deal have failed, or because they haven’t squirreled away enough money to cover what they borrowed.
With a traditional capital and repayment mortgage, a homeowner will make monthly instalments to pay off their loan. At the end of their mortgage term – typically 25 years – they owed nothing to the bank and the house is their own.
More than 11,000 families are at risk of losing their homes this year after being trapped on interest-only mortgages they cannot afford to repay
With an interest-only deal borrowers only paid off the interest on their mortgage, but never made payments to cover the actual loan they had borrowed from the bank. It means that when the deal ends they must find money to pay back the capital they originally borrowed.
Millions of these deals were sold in the 1980s and 1990s as homeowners were told by salesman that rises in house prices would more than cover the debt they owed to the bank.
At the height of the frenzy as many as four in five deals were interest only.
But with no means of repaying this money they must beg the bank to allow them to continue making repayments and to hold off demanding the capital until their house is sold when they die.
Wes Streeting, an MP who sits on the Treasury Select Committee said: ‘It seems outrageous that banks have been able to profit enormously from these loans.
But more than one in eight of these borrowers will have no way to pay back the remaining debt they owe to the bank
‘By contrast elderly pensioners who signed up to these deals now face being turfed out of their homes because the banks show scant regard to them when they need it most.’
And Stephen Lloyd, the Eastbourne MP who has campaigned on the issue of interest-only loans, said: ‘Tens of thousands of families face losing their homes after being snared by this desperate situation. This is unacceptable. If someone can keep up their mortgage whatever their age, they should be allowed to stay in their home securely. It’s what living in a civilised nation is about and is what people deserve.’ Around 1.8 million borrowers have an interest-only deal – around one in five of all mortgages.’
Last week it emerged that banks are instead taking homeowners to court to claw back the cash and repossess their properties.
Len and Val Fitzgerald, a couple in their 70s, face being evicted by Spanish bank Santander because they are unable to repay their £180,000 loan.
Their case has sparked outrage and has led to experts calling for banks to rethink how they treat interest-only customers.
Like the Fitzgeralds, around half of the borrowers who face being evicted this year are pensioners, according to the figures based on research by City watchdog, the Financial Conduct Authority.
These borrowers are in an even more desperate situation because it is harder for them to remortgage their property as lenders now shy away from older customers.
Many customers are unable to repay the capital on their loans and stand to lose their home when the mortgage runs to its end.
Millions face huge shortfalls because they took out endowments – savings plans issued by insurance companies that were supposed to pay out when the deal matured.
‘We almost lost our home’
Felicity and Chris Johnston feared they would never be able to repay their £170,000 interest-only mortgage.
The Johnstons, pictured, were forced to use up their life savings after Mr Johnston, 71, was made redundant and their income plunged. Worse still, their investments underperformed, leaving them facing a huge shortfall.
The couple, from Waltham Cross in Hertfordshire, searched for another mortgage company to cover the loan on their four-bedroom terrace – but they were turned away because of lenders’ tight age restrictions and a clampdown on interest-only deals. They finally had to resort to an equity-release mortgage to stay in their home, which they arranged through Key Retirement.
Mrs Johnston, 64, who has a card making company, said: ‘I was really worried … Every time we tried to renew and extend it we were hit with a dead end.’
Other borrowers expected to be able to pay back the capital when they too out the deal but later found themselves unable to save because of illness or unemployment.
And thousands have been caught out by a mortgage crackdown by the banks since the credit crisis a decade ago.
Banks insist that customers applying for interest-only mortgages must have at least 50 per cent equity in their properties to be eligible for a deal.
They must be able to clearly state how they plan to repay the loan with the sale of the property not often being allowed as a viable option.
In addition many banks refuse to lend to customers who are older than their mid-70s.
It means that many customers who reach the end of their current deal are unable to remortgage on to a new interest-only loan.
Instead they must hope that their bank allows them to continue making their interest-only payments on the understanding that the capital will be repaid when the house is sold on their death.
Experts warned that borrowers who fear that they will be unable to repay their interest only deals should not hide their head in the sand.
Andrew Montlake of mortgage broker Coreco said: ‘People who think they may not be able to repay their interest-only mortgage should contact their lender as soon as possible. There may be various things that they can do but it’s vital they act sooner rather than later.’