Sara Benwell – The Sun

HUNDREDS of thousands of interest-only mortgages are due to come to an end over the next two years, leaving people to pay off their loans in full.

The Financial Conduct Authority (FCA), along with Experian, has calculated that approximately 81,400 of these deals will come to an end this year, with a further 82,100 ending in 2019.

The total value of the mortgages coming to an end in the next twelve months is £9.2billion, meaning homeowners owe over £113,000 each on average.

Anyone whose mortgage comes to an end will need to come up with the money or negotiate another deal with their provider – otherwise their home could be repossessed.

If your agreement is ending soon and you don’t have the savings to pay it all off at once, you need to come up with a plan – fast.

Back in 2015, lenders were told they had to contact any customers whose loans expired before 2020, but the FCA found that lots of people have been burying their heads in the sand.

If you’ve got an interest-only mortgage – here are your options:

1) Repay the loan in full immediately

Repaying your debts in full as soon as your interest-only mortgage expires is what you’re supposed to do.

The expectation is that you will use savings, investments or other cash to clear your debts.

If you have enough money saved to cover the amount you owe, you can pay off your loan when your deal expires and own your house outright.

Another option if your house has gone up in value substantially, is to sell it and use the difference between the loan and what you sell for to put down a deposit on a new home.

If prices haven’t risen by as much as you’d hoped, you may want to look into downsizing to make up some of the cash shortfall.

2) Extend your mortgage

If you have savings, investments or an endowment that is only just falling short of the capital you need to repay, you might be able to extend your interest-only mortgage.

Your lender will only do this if it is certain you will be able to repay the whole sum.

Older homeowners may find their banks are less willing to offer this as many have rules that restrict lending into retirement.

3) Remortgage

If you’ve got several years left on your mortgage, it makes sense to switch to a repayment mortgage if you can.

Your monthly repayments will go up, but you’ll be reducing the amount you have to pay at the end.

If the monthly amount is more than you can afford, you can see if you can extend the terms to spread the payments over a longer time period, or if your provider will let you go part interest-only part-repayment for a while.

Even if you can’t switch to a repayment mortgage, some lenders might let you overpay to start paying down debt – usually the equivalent of 10 per cent each year.

Check your policies carefully to avoid fees.

If you want to switch to another interest-only deal, be careful.

Lenders now need to assess your repayment plan, including affordability and income checks.

This may make it harder for you to get a new deal.

Older owners should be wary too. Lots of banks have rules about lending money to retirees so you might struggle to get a plan that extends beyond your retirement date.

4) Equity-release or retirement interest-only deals

One new option you could consider is a retirement interest-only deal.

Lenders offer these mortgages to help older homeowners trapped in interest-only deals.

The idea is that you pay interest on your house as long as you live there, but then have to repay the loan when you sell up, go into care or die.

The downside is that you won’t be able to pass on property to your children as it will be used to pay off your debts.

Another option may be to use equity release to release some of the value of your home to pay off your debts.

With a lifetime mortgage, which is one of the most common forms of equity release, you can release up to 50 per cent of the value of your home.

There are different sorts available, including drawdown options, which release cash in chunks, and protected plans that guarantee some inheritance for your family.

Whether you will qualify depends on your loan-to-value (LTV) rate.

Check that your plan has a “no negative equity” policy to make sure you won’t end up with debts larger than the value of your house.

Before considering equity release, it’s important to meet with a financial adviser.

Be warned that you may substantially reduce the amount of money you can leave to your family.

With many thousands of people in the same boat, we run the rule over their best options

The Guardian – Rupert Jones

Len and Val Fitzgerald won’t be the last people to find themselves staring down the possibility of losing their home. The couple, from Eastbourne in East Sussex, found themselves in the spotlight last week in a case which highlights the crisis involving Britain’s interest-only mortgages after it emerged Santander had launched repossession proceedings against them, even though they never missed a mortgage repayment.

They are far from alone. There are about 1.67m interest-only mortgages outstanding in the UK. But while the Fitzgeralds face the prospect of being thrown “out into the street” according to their MP Stephen Lloyd, there are things that others can do to stave off this threat.

The wider problem

There have been numerous warnings about interest-only mortgages in recent years. Just weeks ago, the main UK regulator the Financial Conduct Authority (FCA) said it was “very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes”.

With this type of mortgage, the borrower agrees to pay off the interest each month but makes no capital repayments. Borrowers are expected to make sure they have an investment plan in place – usually an endowment policy – to pay off the debt at the end of the term. Some people face a shortfall because their investment has underperformed, while others never set anything up.

In 2013 the FCA revealed that about 1.3 million homeowners faced an average shortfall of more than £71,000. However, the situation may have improved or worsened since then. This year alone, an estimated 85,000 interest-only mortgages are due to mature, and Lloyd said: “I am sure there are tens of thousands of other families potentially facing the same desperate situation [as the couple] in the coming years, which is unacceptable.”

So what are the options?

When someone with a maturing interest-only mortgage is unable to repay the capital but doesn’t want to sell their home, their lender will sometimes agree to extend the term of the mortgage while switching the loan to a repayment basis. But for many people, the maths on this won’t work because, as they will be paying back capital each month as well as interest, their repayments will be a lot higher.

The FCA gives the example of someone whose 25-year, £125,000 interest-only mortgage is about to mature. They have been paying £313 a month, but even if their lender allows the term to be extended by 10 years and switched to repayment, they may find they can’t afford the new monthly payment, which in this example would be £1,208, assuming a 3% interest rate.

Also, as is the case with the Fitzgeralds, the borrower’s age may be a big factor. One in nine of all interest-only mortgage-holders are 65-plus. Some lenders have a maximum age at the end of the term – for example, NatWest’s is 70. David Hollingworth at mortgage broker London & Country says that if a homeowner is coming up against their lender’s age limit, this may shorten the mortgage term to such a degree that it means the payments would be unaffordable.

However, he adds that some lenders have upped their maximum age, while others will consider lending into retirement. For example, in July 2016, Nationwide increased its maximum age for mortgage maturity from 75 to 85. But there are limits on its largesse: only retirement income can be used when calculating affordability, the maximum loan is £150,000, and the loan must be no more than 60% of the value of the borrower’s home. That and other restrictions mean that deals of this type won’t be open to everyone. Could equity release help?

Could equity release help?

For those in a similar situation to the Fitzgeralds, equity release might be a solution. This is a way to get cash out of a property without the need to move home. Typically there are no monthly repayments. Leading providers include Aviva, Legal & General, More 2 Life and Just.

The number of people raiding the equity in their home to pay off their interest-only mortgage is thought to have gone up sharply. Specialist firm Key Retirement says it is finding that 21% of people signing up for equity release are using at least some of the cash to clear a home loan.

The most common equity release schemes are mortgage-based products secured against your home and repaid when you die or go into long-term care. These are known as “lifetime mortgages”.

Dean Mirfin at Key Retirement says: “Typically, the most a homeowner can raise via equity release is 55% of the value of their property, but this would naturally depend on factors such as the type of property, their age and health.”

Some people with maturing interest-only mortgages won’t be eligible because their loan-to-value – the size of the mortgage in relation to its worth – will be too high. This is likely to be the case with the Fitzgeralds, whose Santander mortgage appears to be around 70% of their property’s value.

Other options

The good news is that there are a growing number of specialist products aimed at older people, including those coming to the end of an interest-only mortgage deal. There is the 55+ Mortgage from retirement specialist Hodge Lifetime, which, as the name suggests, is exclusively for over-55s, and is a standard mortgage where you pay the interest on the loan each month and retain 100% ownership of your property. Notably, the maximum term is up to the youngest borrower’s 95th birthday. The maximum loan-to-value on this deal is 60%.

Similarly, Shawbrook Bank has the 55 Plus Interest-Only Mortgage. With this, the main income earner must be aged between 55-75 at the outset and have a minimum income of £16,500 a year, and must not be older than 85 at the end of the term, and there are minimum property value and minimum equity requirements.

Family building society has a deal called Retirement Lifestyle Booster, a 10-year interestonly mortgage repaid with a lump sum at the end. With this, you can borrow up to 25% of the value of your property and use it, for example, to repay your existing mortgage. The youngest borrower must be at least 60 at the time of the application.

“It’s a hell of a situation to be in”

The Fitzgeralds are in a bad position after remortgaging on to an eight-year interest-only mortgage in late 2007. Santander said the parties had originally agreed that when the loan ended the couple would sell the property to pay back the capital – but shortly before that date they decided they wanted to extend the term.

Santander says that once a customer reaches 75 it is unable to lend beyond that point. Len Fitzgerald, 77, told his local paper he and his wife had called on Santander to extend the mortgage until they were 85, adding: “We hardly sleep. It’s a hell of a situation to be in.”

The couple are said to owe around £180,000 (their remortgage was for £178,500) on a property estimated to be worth between £250,000 and worth up to £260,000. So if they sold the house, that would leave them with only £80,000, which would not be enough to buy another home in the area. It would arguably give them a decent pot of cash that they could use to rent a property.

It’s not clear yet what will happen to the couple: a court date was set for the end of April, but Santander said it had agreed to a six-month breathing space to allow discussions to continue.

The Irish Independent – Charlie Weston

A not-for-profit company set up with the aim of buying distressed mortgages in order to keep people in their homes has threatened to take legal action to block AIB’s planned sale of €1bn of its home loans.

Homeoptions claims a process used by the largely State-owned bank to sell a book of bad home loans to a so-called “ethical fund” is “flawed”.

Homeoptions, headed by Dublin-based businessman Brian Reilly, is a not-for-profit company that was set up as an alternative buyer of bank distressed mortgages, which have overwhelmingly been bought by vulture funds. Its aim is to buy the loans and allow people in deep arrears to stay in their homes as renters, rather than repossess the properties.

It is understood Homeoptions has submitted an indicative bid of €800m.

It has written to AIB chief executive Colin Hunt complaining that it was mislead over the bank’s plans to sell a portfolio of soured loans.

In July, amid the backlash against banks’ sales of distressed home loans to vulture funds, AIB launched an alternative process allowing not-for-profit groups to bid for mortgages.

AIB is selling a portfolio understood to have around 8,000 non-performing loans in it, called Project Alder. It is understood the portfolio is valued at around €1bn, but only a portion of the residential loans would go to an ethical fund.

Last week, the Irish Independent revealed that two funds have been short-listed to buy the loans.

They are David Hall’s Irish Mortgage Holders Organisation (IMHO), backed by private equity group Arrow, and Home For Life, a mortgage-to-rent operator funded by UK-based LCM Partners and supported by private mortgage-to-rent operator Arizun. The two will now be given the chance to prove they have the funds to buy some of the non-performing home mortgages.

However, the head of third bidder Homeoptions, Mr Reilly, has threatened legal action to disrupt the process.

He has questioned how it was conducted and told the AIB boss he will seek a court injunction.

In the letter to Mr Hunt, seen by this publication, Mr Reilly claimed AIB was backing vultures, and “not backing brave”. This is a reference to AIB’s advertising slogan, which refers to backing brave.

“As a courtesy to yourself I thought it only fair to let you know that it is our intention now to seek a judicial review of the misleading process undertaken by AIB in conjunction with KPMG (the bank’s advisers on the sale).”

The letter also claims Homeoptions was “misled from the outset of this process”.

Mr Reilly questions how a sales process reserved for ethically funded alternative mortgage groups came to include private companies.

Neither Home For Life nor the Irish Mortgage Holders Organisation responded to requests for a comment, as they are understood to have signed non-disclosure agreements. AIB had no comment.

Caroline Lennon-Nally once vowed that she would never resort to mortgage-to-rent (MTR), a state-backed debt-relief scheme that allows distressed borrowers to remain in their homes by swapping ownership for a long-term tenancy.

“I would rather burn [my home] than rent it back off the banks,” she declared during media interviews in 2011. “I have put huge amounts of my own money into this house. I worked my whole life for it.”

For a brief moment she became the public face of a hitherto hidden problem: public servants with jobs for life who could not afford their mortgages following a succession of crisis-era pay cuts and tax hikes.

Eight years on, Lennon-Nally appears to have changed her mind. She resurfaced last week as one of six directors of Home Options, a not-for-profit company that claims to have a more palatable alternative to the accepted narrative that the only way of ridding Ireland of its legacy of toxic mortgage debt is to sell the loans to vulture funds.

The idea is to tap into ethical funding from America and elsewhere to provide a private version of the state’s MTR scheme that will allow households to buy back their properties at a discount in the future as their finances improve. Rather than being consigned to rent for the remainder of their days, Home Options offers them a second chance at homeownership — a feature likely to have influenced Lennon-Nally’s U-turn.

“There is a fairer way,” said Michael Durkan, another Home Options director, whose day job involves producing and directing theatrical Irish dance shows.

“The politicians have failed us, so we’ve taken matters into our own hands and come up with our own solutions . . . We’ve access to the same resources and expertise as the vulture funds.”

The launch comes as banks are preparing at least three batches of distressed mortgages for sale before the end of this year, according to Link Asset Services, an Australian outsourcing specialist that has taken over the management of many of the portfolios that Irish banks have already sold to vulture funds.

Ulster Bank will be next out of the traps with plans to offload about 3,500 mortgages, on which €900m is owed. Arizun Group, another provider of owner-turned-tenant debt packages, estimates up to €7.8bn owed on 40,000 distressed Irish mortgages could be up for grabs. Some are still on the banks’ books while the remainder have already been sold to vulture funds, which are now trying to exit their investments by reselling the loans to other distressed-debt specialists.

The impetus for all these transactions comes from European banking watchdogs, which are demanding that lenders finally draw a line under their legacy of bad loans. While the three Irish-owned banks have more than halved non- performing exposures to 8% of their loan books in the three years to the end of 2018, regulators want this reduced to under 5%. This is why Link sees Ireland as “the gift that keeps giving”.

Yet the Central Bank of Ireland sounded a note of caution last week, warning that vulture funds could quickly lose their appetite for the risks involved in turning around soured Irish mortgages as the global economic outlook becomes more uncertain. Even if investor interest were to hold up, the Central Bank said its research “suggests that many non- performing loans still on bank balance sheets may be difficult to cure”.

The aspect of loan sales that sparks most public anger — the ability to dispose of loans without borrowers’ consent — is what makes them attractive to banks. Packaging thousands of loans into a single job lot is a much quicker way of getting them off the banks’ books than alternatives such as restructuring and MTR, which require the agreement of each borrower before they can proceed.

Home Options aims to combine the best of both: offering banks a quick fix by taking entire portfolios off their hands and then offering debt forgiveness to the borrowers involved if they agree to surrender ownership in exchange for a long-term tenancy.

While it is vague on details, it is understood that Home Options is already in talks with AIB and plans to bid for the portfolio that Ulster Bank is bringing to market. This risks dragging it into a bidding war with vulture funds such as Cerberus Capital Management, the most active buyer of distressed Irish mortgages.

Home Options is betting that its ethical credentials and not-for-profit ethos will give it the edge over the vulture funds, making it a more politically acceptable alternative for a banking industry that is still largely state-owned.

Lacking the nakedly commercial focus of the vulture funds, Home Options will be able to offer more upside to its owners-turned-renters, especially when it comes to the terms under which they can buy back their homes in the future.

This will give it a clear edge when dealing with the banks, according to Ben Hoey, a former banker whose company, Quartech Solutions, will provide funding and asset management for the mortgages that Home Options plans to acquire.

“We’ll be able to match the [vulture] funds on price while at the same time helping banks protect their reputations and franchises,” he said.

“There’s a weight of money — billions of euros — available from US pension funds and other ethical investors if we can show that our proposition has a social dimension. We can offer debtors a clear plan under which they will one day own their properties again.”

Buying entire portfolios with the hope of converting the households involved from owners to tenants is a risky proposition, according to Arizun founder John McDaniel. He believes that up to 20% of loans in any portfolio are owned by strategic defaulters who lack the will, rather than the ability, to pay what they owe. They are unlikely to co-operate with any debt deal they are offered, no matter how sweet the terms.

“If Home Options has a magic bullet for dealing with people who are gaming the system, then more power to them,” McDaniel said. “They can’t do a deal without the agreement of the guy living in the house.”

Despite its ethical credentials, Home Options will not be a soft touch, according to Hoey. “If debtors don’t accept any of the solutions on offer, we will enforce against them,” he said.

Home Options and Arizun are targeting what they believe is a large gap in the market left by the state’s MTR scheme, which is open only to households with incomes of less than €25,000-€35,000 after tax, depending on where they live. Apart from excluding many struggling families on income grounds, the state scheme is also mired in bureaucracy. Just 445 mortgage-to-rent cases have completed since 2012.

Yet households that exceed the MTR income limits should have the resources to reach a restructuring deal that is less drastic than surrendering ownership of their homes, according to Paul Cunningham, chief executive of Home for Life, an MTR provider funded by AIB.

“If you can afford to pay a market rent, you can afford to make a substantial payment on your mortgage,” he said. “Why would your bank sell your mortgage in these circumstances?”

Ulster Bank faces similar questions as details emerge about the latest portfolio it is putting up for sale. While the loans involved have accumulated an average of more than two years of arrears, this problem could have arisen any time in the past six years, according to consumer advocate Brendan Burgess of Askaboutmoney.com.

“Ulster Bank’s previous loan sales were justified because they involved customers who were paying nothing and not engaging,” he said.

“The current portfolio includes people who are paying their mortgages. These loans should not be sold because the arrears could be sorted out by extending the mortgage term or reducing the rate of interest. The loans may be non-performing under the nonsensical definitions used by banking regulators, but they are sustainable.”

Ulster Bank said the portfolio was being sold only after an extensive trawl of all its problem mortgages to find alternative solutions. The portfolio includes only loans that are unsustainable or in which the borrower has failed to co-operate, according to the institution.

As more mortgages come to the market, questions about the merits — financial and otherwise — of what the banks are doing will only intensify.

A new not-for-profit company has launched with the promised aim of keeping families who cannot pay their mortgages in their home.

Homeoptions says it will provide an alternative to so-called “vulture funds” for banks to sell distressed home loans to and is currently in active discussion to buy portfolios of non-performing loans.

The all-island organisation claims to have the financial potential to handle the estimated 28,000 home mortgages that have been in arrears for more than two years.

A Mortgage-to-Rent-to-Repurchase structure will be operated by the new entity, offering home owners with repayment issues the opportunity to stay in their houses through to retirement.

They will also have the option to buy back their property at a price agreed today, should their circumstances allow for it.

But forbearance will only go so far, and Homeoptions said it will have to enforce rules against any participants who don’t meet their obligations.

It says this will only happen once approval has been received from the board and procedures fully followed.

The company is being set up by individuals involved in activities focused on keeping families in their homes, with each of the board members holding shares in trust.

The board is to be chaired by Erskine Holmes OBE, the Founding Director of the Ulster Community Investment Trust.

“Homeoptions is a socially and economically responsible alternative to vulture funds – an Irish solution to the distressed family home mortgage crisis rooted in a not-for-profit business model and an ethos of ‘fairness for all’,” he said.

“Now, all of 10 years since the property crash, Homeoptions represents an important opportunity to put 28,000 families out of the reach of profit-motivated vulture funds and to deal fairly with all sides for the wider and long-term benefit of Irish society.”

Other founding members of the board include Michael Durkan, a Founding Director of civic advocacy group Right2Homes, Eve Earley from Empowering Change & Right2Homes, healthcare and mental health worker Caroline Lennon-Nally and Brian Reilly, a non-executive director of Magnet Networks & a Founding Director of Right2Homes.

Homeoptions says its aim is to keep families in a home by providing “tailored, affordable solutions, taking account of each family’s personal circumstances.”

Funding will be provided via senior and junior debt, it claims, and public funds will not be needed.

Any profits will be invested back into further loan purchases as well as an affordable housing programme for young people.

The funding and asset management services will be provided by Irish firm Quartech Solutions – a company with a background in managing large loan portfolios.

The new firm has received the backing of Master of the High Court, Edmund Honohan, as well as Fr Peter McVerry.