There has been a great deal of work done by the industry in recent years to address the problem of interest-only mortgages maturing without a repayment plan in place.

Nonetheless, figures from UK Finance last year showed there were still some 126,000 loans due to expire by the end of 2020. While many of the borrowers concerned will have a plan in place to repay the loan in full, there will be plenty who are facing a shortfall and some who simply have no exit strategy at all.

Borrower contact

Despite the efforts made by lenders, there are still far too many borrowers reaching maturity without having meaningful contact with their lender. It is a sad fact that the people who would most benefit from having a frank conversation with their lender, are also the ones who are generally most reluctant to do so.

There is a fear of confronting difficult truths and also a lack of awareness that there are often various solutions available. Borrowers with a loan either already matured or approaching maturity think they are going to face litigation and ultimately repossession and are just trying to put that off for as long as possible. In reality, though, repossession is very much a last resort for lenders and if borrowers can be successfully engaged early enough, there is no need for it to come to that.

Partnership

In partnership with specialist field agents Excel and law firm TLT, we have developed a unique proposition to support lenders and also their borrowers, whether they are approaching maturity or are already there.

We contact the borrower and arrange to meet with them face-to-face at the property to find out as much as we can about their circumstances and to discuss their options, whether that is repayment, conversion, refinance options, the sale of the property, or where there is no other solution, what happens if litigation is commenced.

Sale of the property

Where the sale of the property is required, it is almost always better for all parties if this decision is made sooner, rather than later, as it allows for an orderly sale without the need for additional costs to be incurred. The borrower will typically retain more of the asset value and will also have time to make arrangements for alternative accommodation specific to their future needs.

It’s clearly a better customer outcome to go through a process that supports the borrower and all parties working together to get the best price in the shortest possible timeframe.

Equity release

Much of the time, it doesn’t need to come to this at all, though. We have seen a surge of interest in equity release in recent years, and there is now a wide range of products available that can help homeowners unlock the equity they have in their home.

There is also a broad spectrum of other products that lend into retirement giving borrowers even more choice and options.

Maturing mortgages

Understandably, a lot of industry and regulatory attention has focused on the tranche of mortgages reaching maturity in the period up to and including this year. But there are more than half a million loans due to expire between 2021 and 2027, i.e. starting less than a year from now. The UK Finance figures indicated that the number of outstanding loans due to mature by the end of 2020 had fallen by more than two-fifths from the previous year, and more than 87% since 2012; whereas the overall total, including loans maturing from 2028 onward, had fallen by little more than 10% year-on-year, and a little over half since 2012.

So while there has undoubtedly been a great deal of progress made in confronting the immediate problem, it is now time to engage with these borrowers – who collectively account for well over £200 billion – that will reach maturity beyond the end of this year.

The further into the future we look, it is also the case that the loan-to-value profile begins to decline, as loans taken out at the height of the property boom – including some at more than 100% LTV –begin to reach maturity. Naturally, the higher the LTV, the fewer options are open to borrowers.

This makes it all the more imperative to engage with borrowers as early as possible to understand their situation and also their future plans. As evidenced by the reductions seen since 2012, borrowers do take appropriate action when required, but helping a borrower to face up to the situation and understand their options as early as possible is in everyone’s interest. Although it seems there is plenty of time to reach a solution, time generally runs out quicker than many seem to think.