How can we avoid losing our home?
"I’m in a desperate
situation. I am 72 years old and my wife is 68, and we still have a very large mortgage of £93,000 on an
interest-only basis, as I had problems with my business. The mortgage has two years and eight months to run.
We’ve used up all our savings to survive and at the end of the period will not have the capital to repay the loan. I can’t see any way out. We get no help from the
government as my income is too high. Any advice would be welcome."
Ask the Professionals: Frances Walker, a spokeswoman for charity the Consumer Credit Counselling Service, says:
As you and you wife are both elderly, it’s likely that you will find it hard to obtain another mortgage when your current interest-only deal ends, but there may be other options available to you.
Without knowing more about your financial position – for example, your income, whether there’s any equity in your property and if you have any other debts – it’s difficult to recommend a specific course of action.
However, you should contact a free debt advice charity such as Consumer Credit Counselling Service (CCCS), National Debtline or Citizens Advice as soon as possible. They will be able to conduct a full review of your finances, looking at your income, outgoings and debts; check that you’re not missing out on any entitlements; and recommend the best way forward.
You could move from interest-only to capital repayment, in order to build up equity in your property and reduce your mortgage debts. If you explain your situation to your creditors, and produce an income and expenditure budget, they may well be lenient. Also, remember, if your home is repossessed, you and your wife are likely to be re-housed because of your age.
One solution may be equity release, although you will need a qualified adviser to make a thorough review of your circumstances first. Equity release plans – also called lifetime mortgages, home reversion or home income plans – are a way of releasing money by taking out a loan on the value of your property.
However, as you’re on an interest-only mortgage, you may not have much equity in the property and equity release companies may only offer a lifetime mortgage to people with more than 60% of equity. Many companies also refuse a loan to those who have an existing mortgage.
There are also several new mortgage-rescue schemes that may help you. There’s a £200 million government scheme, for example, which is designed to stop vulnerable families losing their homes. It has a shared-equity element to help householders who have experienced a loss of income and need help paying their mortgage, and a sale-and-rent-back element.
The scheme is subject to a number of eligibility tests and you should contact your local authority’s housing office to see if you qualify. Advisers at the CCCS or CAB can advise you about this scheme.
Another option may be the recently launched Homeowners Mortgage Support Scheme, which allows you to defer up to 70% of your mortgage interest for a maximum of two years. The deferred interest payments accumulate on the mortgage account and must be paid back when your situation improves.
This scheme is available to those suffering a temporary loss of income, with outstanding charges against their home of less than £400,000 and savings of less than £16,000.
Finally, you could sell your property and move into affordable rented accommodation. Despite the heartbreak involved in selling your home, occasionally this is the only option. It could be better than hanging on stubbornly, since it allows you to recover more equity from a property than if it is repossessed.
Debt counselling charities such as CCCS exist to give advice on such problems, and you should seek help as a matter of urgency.
An equity release scheme, where the money borrowed against equity in the property (up to a maximum of 50%) is subject to interest charges and although the borrower makes no payments during their lifetime, the monthly interest repayments will roll up and be added to the original debt, which will be settled on the borrower’s death. A lifetime mortgage is distinct from a home reversion scheme in that the lender never owns part of the property. But most lifetime mortgages are sold with a no negative equity guarantee. This means that if the loan is greater than the property’s value it’s a problem for the original lender and not the homeowner.
A loan in which the borrower pays only the interest on the sum borrowed for the life of the mortgage but, at the end of the mortgage term, they still owe what they originally borrowed as this remains unchanged. The advantage of an interest-only mortgage is the monthly repayment is considerably lower than for a comparable repayment mortgage. Lenders generally insist the borrower also invests in an endowment, ISA or pension savings policy that, on maturity, is intended to pay off the capital loan.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.