The number of so-called mortgage prisoners is set to rise as lenders pull out of the interest-only mortgage market, Aldermore Bank has warned.
Many lenders have withdrawn from the interest-only market or significantly reduced their maximum LTVs following the Mortgage Market Review, which comes into force next April.
This is a growing worry for hundreds of thousands of pensioners with interest-only mortgages, many of whom risk losing their homes.
Nearly half of interest-only mortgage holders have no repayment plan.
Borrowers on an interest-only mortgage who now wish to remortgage or raise extra capital may find themselves trapped if their lender has withdrawn from the market, Aldermore warned.
Many will need to move lender as a result, and could be forced to convert to a more expensive capital repayment mortgage.
The Financial Conduct Authority has previously warned lenders against unilaterally converting interest-only mortgage customers onto capital repayment deals without the borrower's consent.
But this is unlikely to apply if the borrower is moving to a new lender.
Charles Haresnape, managing director, residential mortgages at Aldermore, said banks can continue to offer interest-only mortgages within MMR principles, provided they ensure clear repayment strategies are in place and that the loan could be serviced on a repayment basis if ever needed.
“We remain open for business in the interest-only area up to 75% LTV, having revised our criteria. Many potential interest-only borrowers are very creditworthy and, with the right level of lender due diligence, would be excellent borrowers.
"We want to help those people who are at risk of becoming mortgage prisoners.”
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