Since falling out of favour after the Financial Conduct Authority (FCA) regulatory crackdown, the once-popular interest-only mortgage was almost wiped out. This created a large blank space where loans for pensioners once filled the market, particularly from high street banks.
However, the property market has seen more flexible lending reintroduced of late, with challenger bank Shawbrook announcing it will be re-entering the interest-only market. Now offering a new range of low-cost loans for retired homeowners, Shawbrook intends to reboot the interest-only mortgage market and provide new loans for those previously neglected. The bank will be offering mortgages to customers entering or nearing retirement, or for those looking to extend an existing interest-only mortgage.
Obtaining a mortgage over the age of 65 has become increasingly difficult over recent years, with high street banks often turning older applicants away due to low lending age limits, the maximum age at the end of a mortgage term, or simply because they don’t fit tick-box criteria.
With so many people now stepping onto the property ladder later in life and working beyond state retirement age, this has become a growing problem – one that we often solve at Enness. With our greater access to contacts and specialist solutions across the market, we recently managed to secure a mortgage for an 88-year-old client, which was also featured in The Telegraph.
The FCA previously cracked-down on interest-only options due to regulators’ concerns that many borrowers were unaware of how the loan worked and consequently had no repayment plans in place to pay off the debt. As a result, many lenders pulled out of the market, or at the very least were ordered to write to their interest-only customers and encourage them to make a repayment plan. With 2.5 million interest-only loans outstanding in 2012 (a figure which now stands at 1.9 million), the FCA introduced tighter affordability rules, making it increasingly difficult to find a mortgage as a retired homeowner.
Shawbrook has branded the interest-only market as ‘underserved’, where the opportunity to invest is still great. The bank’s latest release of interest-only mortgages for pensioners, runs in line with its focus on niche areas of the market, deemed too small or risky for bigger high street banks. Shawbrook has previously introduced products for commercial lending, specialist buy to let secured loans and short term finance, fitting to the needs of a specialist market – much like what we cater to!
The bank’s interest-only options for pensioners will allow borrowers to pay the interest on their mortgage each month rather than capital, which in turn makes regular payments extremely low. The entire amount borrowed will, however, remain to be repaid at the end of the mortgage.
By investing itself in the interest-only market, it seems Shawbrook is one of few lenders to have finally started catering to the gaping lending space that we’ve long called for and is throwing a much-deserved lifeline to older borrowers. With Shawbrook now leading the way for mainstream lenders, we expect many others to follow suit in the near future.