Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

Thousands of Interest-Only Mortgages Nearing Maturity May Lead to Poor Outcomes

Thousands of older homeowners with interest-only mortgages are approaching the end of their terms, with many unaware of the options available to them. Data from UK Finance indicates that 60,000 interest-only mortgages, valued at around £9bn, will reach maturity by 2027.

Air has highlighted that the majority of these borrowers have a loan to value (LTV) of less than 50%. For those over 55, Financial Conduct Authority (FCA)-recommended lifetime mortgages and retirement interest-only (RIO) products are available, but many borrowers are not aware of these options.

Potential Consequences for Borrowers

Air warned that some borrowers may draw down pension assets to clear their mortgage balance, which could trigger tax liabilities. This action could also result in crystallising investment losses at an inopportune time and reduce the funds available for purchasing an annuity and securing guaranteed retirement income.

Other borrowers may opt for a standard repayment mortgage, which could place unnecessary strain on their disposable income due to full monthly capital repayments. There is also a risk that some may sell their homes when it may not be necessary.

Industry Responsibility

Air stated that the FCA expects the industry to ensure customers are made aware of the full range of options available to them. Later life borrowers should be informed about the benefits of modern lifetime mortgages, which include fixed rates for life, protections such as certainty of tenure, and a no-negative-equity guarantee.

For letting agents and inventory clerks, these developments may impact older tenants and landlords who are navigating the end of interest-only mortgage terms. Awareness of these issues can help property professionals support clients facing significant financial decisions.