Interest only mortgage payment loan over 60

[smihelp]

NC for this.
A close relative and their spouse were given an interest only mortgage 20 years ago after renting for years. The mortgage was for £100,000. There was never any chance they would repay the mortgage except on their death. Both were retired and not in great health. I believe the friend of a relative financial advisor fiddled the numbers because I can't understand how they got the mortgage.
After the death of the spouse the surviving relative was in receipt of some kind of benefit that paid part of the interest on the mortgage. A few years back this benefit changed to a loan to be repaid on their death. It is the government that pay it but only on a loan basis. The only way of repaying this is by selling the house on their death. There is no opportunity out of downsizing because the property is already very small and is adapted to their disability.

Does anyone know more about this kind of situation? Why was it changed to a loan from a benefit? My relative is upset that there will be less inheritance for their dc.

My relative still pays around £300 a month on the mortgage and is now mid 80s.

I have POA and am executor for their will so this is mine to sort out on their death. I've never had a mortgage so I don't know much about it and they can't tell me much either. The building society just says don't worry about it. The mortgage term is up in 5 years.

Thanks for reading and any advice.

Interest only mortgages usually involve the people having a solicitor who will have explained that it means what the title says - interest only so it is quite hard to allege people did not know it was interest only. I took one out in about 2020/21 when almost 60 but I do still work. So that part of the question is not really an issue - in 5 years the £100k will have to be paid back so selling the property may be the only way to do that. Also lenders of people who have interest only mortgages write to them again and again to remind them they will need to pay the sum and even ask what their plans are to repay it and how they will repay it which I found at the time incredibly nosy of the lender sending me the reminders but I understand why they do it so no one can ever say they had no idea interest only meant interest only.

On the benefits to someone with a mortgage who is not renting, I have a vague recollection of the law changing. It probably does help tax payers some of whom have the biggest tax burden now in 70 years that when people sell a home they will pay back the benefits loan rather than just be given it.

With the mortgage term up in 5 y ears the person may still be alive then so they may want to look into an equity release loan to pay off the existing mortgage. Whether a child will inherit once all these loans are paid back is not clear - it depends how much equity there is in the house, if any.

Also plenty of people cannot leave any inheritance to children eg my father had to pay £130,000 in his last year for full time dementia care at home and died just as his life savings were used up. I suppose if the person wants to give some money to the child then they could sell the house now, pay off the £100k mortgage, pay off the benefits loan, give the remainder of the equity in the house (if any) to their child and move in with the child in return so the child can look after them in return.

Thank you for your reply. They are not in a position to move due to the disability adaptations made to the home otherwise I agree that that would be a good idea.

I'm not really understanding the issue

In the future the house will be sold, the mortgage will be paid off, the loan will be paid off, and anything left will belong to the estate

It sounds like they took out a mortgage that they couldn't afford, and then asked the government for assistance to pay it. As the government don't pay mortgages for people, this was a loan that needs to be repaid

They are not in a position to move due to the disability adaptations made to the home

Unless they're in a position to repay the £100k they'll have to move in 5 years. The mortgage company won't accept 'but the property really meets my needs, I don't want to sell it'.

If they don’t have the means to pay the mortgage in 5 years they will have to move how much is the property worth now would they be able to sell it and purchase another property with the equity?

The government paid mortgage interest for those on certain benefits after a qualifying period. It was a fixed rate so depending when it was they might find that it also paid off some of the capital as it he rate didn't change until sometime after the interest rates fell.

The support was then changed by the government into a loan secured upon the house which would need repaying upon death or the house being sold.

In 5 years time the house will have to be sold if they have no way of paying off the mortgage when it comes to an end.

The building society keeps saying don't worry about it whenever they are asked about having to sell at the end of the term. They might extend it seeing as my relative will be 90. It's just really shit for them to have this hanging over them at this age and be paying £300 a month on a mortgage.

Does anyone know when the government changed things and why?

Support for mortgage interest ( SMI) which is what your relative was getting was changed from a benefit to a loan because people were getting their mortgage interest paid often for years on end and benefiting from rises in house prices . I suspect many others felt this was unfair and the government changed it to a loan to stop people benefiting in this way.
Clearly they were daft to take out a mortgage that they couldn't afford when they were both already retired - it was never going to end well ! If your relative has no home in five years time they will just have to rent like many other pensioners do and claim housing benefit if they can't afford the rent. Or could they look at equity release - honestly not sure if you can release equity in this situation but may be the only option to continue living there? Does your relative have equity in the house?

https://www.gov.uk/government/publications/conversion-of-support-for-mortgage-interest-smi-from-a-benefit-into-a-loan

Read through these pages. Its not much different from any changes to benefits governments made ie income support to tax credits, tax credits to universal credit. These things constantly evolve, in theory to benefit tax payers.

April 2018 it changed

commonslibrary.parliament.uk/research-briefings/sn06618/

I'm surprised the building society have said don't worry. They usually write to inform the date that it will need to be repaid and to check that there is a process in place for this. The letters get more frequent as the deadline approaches.

Why are they still paying 300? Does the loan not cover the interest? Or are they paying off some capital?

Thank you. I wasn't really involved when things changed and had not understood why.
My relative is just paying the interest and the loan contributes towards this but they are still paying around £300 a month. The property is worth around £300,000. Nothing has ever been paid except for the interest.
When they die the BS will get their £100,000 back and the loan will be repaid with interest. I do t know how much that will be. I thinking the government pay around £40 a month towards the mortgage. It seems an awful lot of money for such a small mortgage but as I said, I don't have experience of mortgages. I'm just angry they had such shady financial advice years ago and it's left this mess.

I'll get the latest letter out and see what it says regarding repayment. My relative is hoping not to outlive the repayment period which is very sad.

@smihelp its possible the bs isn't pushing things because they know when the mortgage term is up they don't stand a chance of getting possession and getting your relative out at their age. The courts wouldn't look favourably on the bs. Seek legal advice for yourself to check likelihood etc and obviously there's no guarantee but I think the best will just sit on it as its not going to be very long term.

It has given them the security of owning. If they had continued to rent they could have been kicked out at any time.
Don't trust the BS saying don't worry about it tho! You need something in writing that they will extend the term.

For 20 years they haven’t had to worry about a landlord, or renewing a lease, or having inspections. They’ve had the mortgage part-paid by the govt for a period as well.

And they will benefit from having 25 years of house price increases, instead of having that money go to a landlord. Possibly even more than that if the BS grants an extension, as seems likely (since it’s not a good look to make 90yos leave their homes).

So they are really very fortunate that someone sorted out this purchase for them all those years ago. There are many pensioners who would love to be in that position.

Exactly this. they have been very lucky especially as someone ' fiddled the numbers'. Nice that tax payers have been able to help them, although i guess probably would have cost more if they needed help with rent for years on end.

They didn't ask for the numbers to be fiddled. They just were as no way did they have the income to repay that mortgage and never would have either. Both were vulnerable and not at all knowledgable about finances and trusted the advisor. I suppose some here see it differently but I see an elderly and disabled vulnerable person worried sick they'll be kicked out of their home in a few years despite what the BS say.

Can you have a look at the paperwork for the SMI as the current rate is 3.16% (unless it's changed recently) so they should be getting that across a year which is 3160 so £263 per month

The problem is that they took out a mortgage on interest only at an older age without the provision to pay back the loan.

They may have to sell the property and then use the uplift in gain they have made to pay off the mortgage and rent in the future.

I realise this isn’t ideal at their age and circumstance but they don’t actually own the property and in effect have been renting it with an interest only mortgage. But the property has increased in value since so they do have options.

It would be better to face this now and plan for tomorrow rather than ignore it.

The building society just says don't worry about it. The mortgage term is up in 5 years.

Personally, I'd be bricking myself if I was in that position and didn't have an endowment policy set to mature in 5 years.

The strong implication is that the building society are assuming they will have to extend the term of the interest only loan. Your relatives continue to get the benefit of the house until they pass at which point the building society will be paid back and in fact their heirs will inherit a decent amount of equity even after the bs and government are repaid. Unfortunately I doubt you can get the BS to agree to it now.

The figures don’t sound off for standard variable rate interest repayments; if anything a bit low.

But as others have said they have done very well out of someone fiddling for them ! They were able to buy a property which has increased hugely in value even taking into account that they will need to repay the loan. If it's any consolation, there are a lot of older people in this situation who took out these interest only mortgages with no plan in place to repay. Even in a worst case scenario that they have to sell up they still have large amounts of equity, although I appreciate the disruption isn't something that any 90 year old would want to go through especially if the home is adapted to her needs. I hope you manage to find a solution - could you look at who fiddled the figures to see if there is any basis for compensation for being mis- sold a loan they could not afford ? Or was it a family member who fraudulently claimed on their behalf?

But they signed the paperwork to confirm that the figures were accurate and they had the means to repay the mortgage at the end of the term. They weren't elderly when they signed up to this they were of working age.

They've benefitted from over 20 years of secure housing and house price inflation. With a house worth £300k and a mortgage of £100k they'll still quids in compared with if they hadn't taken out this mortgage as they'll have around £200k to pass on to their DC that wouldn't have existed if they hadn't bought the house.

The other option is could they move to a cheaper property to pay the mortgage off now? Even if they need help with the move, it will free them from the mortgage costs.

The building society will be saying don't worry as they are likely to agree to extend the term rather than evict someone extremely elderly. Your relative may also be able to look at equity release to allow them to stay.

If your relative is worried about inheritance just reassure them that it isn't important. It is far more important that an elderly person is able to live comfortably and throwing everything at that is worthwhile.

I used to be a mortgage adviser and the amount of people who took interest only loans with no repayment vehicle was shocking. We all know the industry was rife so I don't think it's fair to say that the adviser fiddled the numbers. Selling the property to repay the mortgage was considered enough.

It should have been all over any documentation that it was their responsibility to ensure they had a vehicle in place.

But we are where we are and as other posters have said, they have benefitted massively here to have the security and peace of mind. You say that the bs are assuring you it's ok - have you got any discussions documented etc that you can show your relative to reassure them?

Is there some way of seeing the balance of the interest that is accruing to give your relative peace of mind that there will be something left over? They have done very well out of this over the years so seems a shame for them to be worrying.

They will have signed to say that they intend to sell the property at the end of the term to repay the IO mortgage.
It all sounds a bit ungrateful to be honest. They have been able to live in a £300k property at a cost of £300pm with the excess being paid by the tax payer. Yes they have to pay £100k back as this is what they borrowed 20 years ago fully aware of the fact that it would need to be repaid.
They would have also received paperwork confirming that the government assistance was no longer free and that it was repayable.
Tough luck on the inheritance point