Society of Equity Release Advisers: FSA regulations will bolster equity release demand

According to the Society of Equity Release Advisers (SERA), a surge in equity release demand is likely to take place in the near future.

SERA’s chairman, Simon Chalk, says: “With [the] FSA placing the onus on lenders and mortgage advisers to be certain that new borrowers have a realistic plan of repaying the capital on interest-only mortgages, existing homeowners can expect to be contacted by lenders questioning exactly how they intend ultimately paying off their loan.

“This will inevitably mean that many borrowers close to retirement, who have not already established a repayment vehicle, will find that they have left it too late and simply cannot afford to convert to a repayment mortgage or increase the term.

“For many of these borrowers, switching to a lifetime mortgage or home reversion plan will be their only saviour yet the vast majority of lenders do not offer such products and many will have too large a loan to switch.”

Mr Chalk points out that certain lenders are adopting an aggressive stance when they discover that an interest-only borrower is unable to repay the capital sum at the end of the term.

“We have started receiving enquiries from IFAs and solicitors who have clients threatened with repossession if their mortgages are not paid off in full,” he says. “One 63 year old client explained that his Bradford & Bingley interest-only mortgage was due to be repaid in September; the bank only having agreed to extend until December. After that they will commence repossession proceedings if he does not repay his debt.

“The logical step would be for IFAs and lenders without an equity release service to form an allegiance with a firm of qualified equity release specialists; not only to protect their own interests, but to ensure their customers are receiving the best advice.”