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Industry must grasp interest-only problem

Martin Wheatley, managing director of the conduct busines unit of the Financial Services Authority, was talking recently at a Treasury Select Committee session about the ticking time bomb of interest-only mortgages and the inability of many people approaching retirement to repay their loans.

While many will take issue with the alarmist language, he is right to move this issue up the agenda for lenders and brokers to debate.

Many building societies and banks have had this issue on their risk registers for some years, with one or two starting to plan their strategies for working with clients to achieve a satisfactory outcome for all concerned.

The development of equity release products that allow for partial interest servicing will in many cases be a good option, allowing people to match payments to a reduced income.

Thankfully, many clients will have well matured mortgages with low LTVs following a few years of decent house price growth.

A recent survey by Aviva highlighted the growing proportion of people who are approaching retirement with a mortgage, which is up 4% in the last two years alone.

This is an issue the industry should embrace. It should be working on developing products and funding that can help meet the challenge.


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  • PCT 10th April 2012 at 12:49 pm

    Thats easy John. They get to stay in the house they have loved for years, but could not be bothered to pay for !

  • John Lacy 7th April 2012 at 10:22 am

    So a lender lets a person have an interest only mortgage and in the end the owners can’t repay all of the capital at retirement. The lender then offers them an equity release mortgage to take away the monthly payments and escalates the debt over time possibly to the point that there is no equity left.
    I see lenders taking a profit from all parts of the deal but can anyone tell me what is in it for the customer?