An elderly couple face losing their home after Santander has refused to extend their interest-only mortgage due to their age. The bank has launched repossession proceedings against Len and Val Fitzgerald who live in Eastbourne, East Sussex. However, Santander has now agreed to a six month “breathing space” in order for discussions to continue.
There Have Already Been Warnings
This case has put focus and scrutiny upon interest-only mortgages. The Financial Conduct Authority (FCA) has already issued a warning about the significant number of borrowers who are at risk of losing their homes through interest-only mortgages. Currently, there are approximately 1.67 million outstanding interest-only mortgages in the UK. Furthermore, it is estimated that 180,000 of these loans are held by people aged 65 and over. A former FCA boss previously described interest-only mortgages as a “ticking time bomb” back in 2012.
An Interest-Only Mortgage has Caused Trouble
The couple found themselves in this unfortunate situation after they remortgaged with an eight-year interest-only mortgage of £178,500 in 2007. Santander have said that the couple had originally agreed that they would sell the property when the loan ended in December 2015. This was so that they could raise the funds to pay back the capital. Instead, the couple requested to extend the term shortly before it was over. Santander rejected the request, stating their age and “affordability factors” as the reason. The bank then advised the couple to seek financial advice.
Is Santander Heartless?
The Fitzgerald’s MP Stephen Lloyd has been vocal in his disagreement with the decision. He has described Santander’s actions as “some arcane internal decision” at the expense of a “frail elderly couple”. In recent years, there have been various warnings against interest-only mortgages, which have emphasised fears that some of those left with substantial bills could have their homes repossessed.
Why is an Interest-Only Mortgage Not Advised?
With an interest-only mortgage, borrowers agree to repay just the interest each month, but not any of the capital. Instead, they are expected to make an investment plan to pay off the debt at the end of the term, however, this isn’t always guaranteed. Some people are facing a shortfall because their investment has under-performed, whilst others simply never save anything.
Legal Action
The couple have issued a complaint and took their case to the Financial Ombudsman Service. They ruled in Santander’s favour and in January, the bank instructed solicitors to begin legal proceedings for repossession. A court date was originally set for the end of April this year. However, representations from Lloyd has allowed for a six-month period where all options can be investigated.
A Change for the Future?
Although unfortunate, the ongoing issue between the couple and Santander has highlighted a need for change to interest-only mortgages. It is highly likely that there are more families facing a similar situation and even more in the coming years. Lloyd is urging that Santander and other lenders to allow borrowers up to the age of 85 and beyond to obtain an interest-only mortgage.
