New data from a leading ratings agency has found that over three quarters of borrowers aged over 60 are on interest only loans. With many of these borrowers approaching the end of their mortgage terms, many experts are concerned that arrears levels amongst older people will rise as they struggle to repay their home loan. We look at the problem facing many over 60 year old borrowers with large mortgages.
Over 75 per cent of over 60s have non-repayment & interest only loans
Data published by ratings agency Moody’s shows that more than 75 per cent of borrowers over the age of 60 have interest only loans on a non-repayment basis. According to the agency’s Investors Service report, around 75.3 per cent of older borrowers have a mortgage on a non-repayment basis compared to 42 per cent of younger borrowers. The report also found that more than a quarter of loans to older homeowners are due to mature by the end of 2016.
Moody’s has warned that older borrowers have a greater refinancing risk due to the shorter maturity profile of these loans and the coming ‘refinancing wall’ – a large quantity of loans that are due to mature at around the same time, creating a potential logjam among lenders.
The report comes as the Financial Services Authority puts the final touches to a report highlighting the findings to a review it has carried out into the ‘interest only’ mortgage sector. This FSA report is expected in the next couple of weeks.
“High value mortgage borrowers over the age of 60 may find it harder to refinance their home loans as they approach retirement,” said Islay Robinson, CEO of London mortgage broker Enness Private Clients. “I always suggest to high net worth mortgage clients that they tackle their interest only mortgage as early as possible as this gives them a much better chance of establishing a sensible repayment strategy.”
Moody’s found that in the next four years, 38.1 per cent of all interest-only loans to older borrowers will mature, compared with 4.8 per cent of loans to younger borrowers. FT Advisor reports that ‘it will take older borrowers longer to raise funds as the average outstanding balance is £70,227 versus £45,271 for younger borrowers.’
FSA data published in February revealed that the UK could be facing an interest-only ‘problem’ worth up to £120 billion. This is because most interest-only mortgage holders either have no repayment plan or have one but are not on course to clear their debt.
Research from analyst BDRC Continental suggests over a third (39 per cent) of interest-only borrowers holding a total mortgage value of £75 billion have no repayment plan, while a further fifth (22 per cent) holding mortgages worth £45 billion have an investment plan which is not on course to clear their debts.
“Clearly it is more of a problem for older borrowers as they have less time to come up with a solution to pay their large interest only mortgage,” adds Mr Robinson, the London mortgage advisor. “So, I would urge anyone with a high value mortgage to ensure they review their arrangements on a regular basis and to seek advice from a professional if you are worried that you won’t have sufficient funds to repay your interest only mortgage at the end of the term,” he added.
