HML is investigating using equity release as a possible strategy for its clients as a remedy for borrowers on interest-only deals.
The company has been working with industry consultant Neil Forrest to look at how lenders can deal with borrowers who have failed to switch to a repayment mortgage.
In Mortgage Strategy’s cover feature this week, Andrew Jones, chief executive of HML, says the motivation is keeping people in their homes for as long as possible as they move towards retirement if they are on interest-only.
He says: “One of the ideas Forrest has got is that if you’re nearing retirement and your income falls then potentially you could roll up some of the interest as well as the capital.
“So long as the customer is still making some repayment and provided there is some equity left in it, then at the end of somebody’s life you’ve kept them in their home.”
He adds: “They’ve made some level of contribution as and when they could, and from the lender’s point of view there’s some equity left in the property, which is not that bad an outcome.”
Jones is keen to point out that at the moment it’s just an idea which is being discussed and there are no quick fixes but it could be a possible solution.
Dean Mirfin, group director of Key Retirement Solutions, says his firm is already using equity release to deal with this type of problem, mainly in interest-only loans where there has been a shortfall in the endowment used to repay the capital.
But getting an equity release mortgage at a sufficient LTV to cover the outstanding mortgage could be a challenge if there has been no attempt to repay the capital.
Mirfin says: “A combination of the LTV and whether the client could service the loan means that it won’t be for everyone but it could be for a reasonable number.”