Interest-only customers are set to increasingly seek professional advice from intermediaries as they approach the end of their loan terms, allowing significant opportunities for advisers to discuss potential retirement solutions with their clients to arise, new research has found.
Upon interviewing interest-only borrowers aged 55 and over, Legal & General Home Finance (L&G) revealed that half of them had no plan in place to repay their loan. However, the majority of borrowers were planning to speak with an adviser or broker as they approached the end of their loan to discuss their options for repayment.
According to the Financial Conduct Authority (FCA), there are approximately 1.7 million mortgage accounts with outstanding interest-only loans. In a bid to better understand the needs, attitude and behaviours of these borrowers, L&G conducted a series of qualitative interviews.
When speaking with these borrowers, all of whose loans were approaching maturity within the next five years, L&G’s findings suggested there are significant opportunities for intermediaries to engage with clients with interest-only mortgages as they approach retirement.
The interviews found that consumers were drawn to the benefits of fixed interest rates for life and the certainty provided by lifetime mortgages, while others were attracted to the opportunity of being free from making monthly interest payments.
However, a percentage of the interviewees did not know where they could seek more information on the product, with a small group expecting to learn about the product from their current mortgage provider.
Commenting on the findings, L&G Home Finance CEO Steve Ellis said: “From our Virgin Money partnership to our innovative Optional Payment Lifetime Mortgage, Legal & General Home Finance is taking big strides to demonstrate its commitment to helping intermediaries find solutions for their interest-only customers.
“Professional advice clearly remains crucial for interest-only borrowers. Our research has shown that just a small proportion of the individuals we interviewed who were coming to the end of their mortgage term knew about these solutions, and many hadn’t actually made any plans to repay their debt. However, most expected to engage with their adviser to discuss their options, including how their property wealth could help.
“Addressing the interest-only challenge is one of the biggest challenges facing financial services. There is clearly a huge opportunity for advisers to support their customers by including retirement lending solutions in their conversations, and ultimately help them secure the best possible retirement.”
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