- Posted on 07 Aug,2018
st-only mortgage holders with no way of paying off their loan could be handed a lifeline, as major banks look to get these troublesome customers off their books. Virgin Money has signed a deal with one of the biggest equity release providers, insurer Legal & General. It offers customers the opportunity to switch from an existing interest-only loan to a lifetime mortgage with the insurer. Interest-only mortgages were commonplace before the financial crisis but these customers have since provided a major headache for banks. Borrowers were required to pay off only the interest on their loan each month, rather than paying down the capital. While this was an easy way to lower monthly payments, many borrowers are now reaching the end of their term with no way of paying back the original debt. The City watchdog, the Financial Conduct Authority, has expressed concerns about many of the 1.7 million mortgage customers with outstanding interest-only loans. The situation is particularly acute for the 200,000 people who have a loan maturing in the next year or two. These loans are also an issue for lenders who could be forced to repossess properties in the most serious cases. The regulator called on lenders to do more to support these borrowers. Deals between high street lenders and lifetime mortgage providers could be one way of resolving the crisis. Virgin Money has announced its interest-only customers aged 55 and over will be referred to Legal & General, where they will receive advice on whether a lifetime mortgage could offer a solution. A lifetime mortgage pays a lump sum to a borrower, which can be used to pay off the interest-only loan. However, borrowers should be aware that interest charged on these loans is usually “rolled up”, meaning interest is charged on the interest previously accrued. This can make it an expensive option for those yet to reach old age. Lifetime mortgage customers can eliminate this problem if they choose to pay the interest on a monthly basis, as they have done with their interest-only loan. The debt itself is recouped when the homeowner dies or moves into long-term care, when the provider takes their share of the sales price.