An interest-only client nearing maturity needs a plan to repay the loan. The lending options you can advise on, the pension and investment questions you cannot, and why the contact should start years ahead.
An interest-only mortgage requires the full balance to be repaid at the end of the term. The client was asked for a repayment plan when the loan was taken out. Years later, the plan may no longer cover the balance, or may never have been put in place.
A client who took an interest-only loan in their thirties reaches maturity in their fifties or sixties. Their options narrow as the date approaches. Under Consumer Duty, a shortfall you can see on your files is a foreseeable harm, and contacting the client early is part of avoiding it.
Repayment plans recorded at the start of an interest-only loan take a few forms.
Each of these is a financial plan, and each may have changed. Endowments may fall short. A pension may be smaller than the client expected or may be needed for income. A second property may carry a capital gains tax bill on sale.
These are yours to advise on, within your permissions.
, in full or in part, over a term the client can afford.
, where the lender agrees and the client can afford the payments into later life.
, where the client pays interest for life and the loan is repaid from the estate or on a move into long-term care.
, where your firm holds the equity release permission or works with an adviser who does.
, with or without a smaller mortgage on the next home.
Several of the routes to repaying the balance draw on pensions or investments. Whether to take tax-free cash from a pension to repay the loan, whether to cash in an ISA or an investment bond, and how either affects the client's retirement income is regulated advice, which Equity & General gives.
The lending decision depends on the answer. A client who can clear half the balance from pension tax-free cash needs a different loan from one who cannot. Offer the introduction before you make your lending recommendation, and agree with the planner the order in which advice is given.
Clients who took an endowment to repay an interest-only loan received regular statements from the provider showing whether the policy was on track. Ask the client for the latest one. Where it shows a shortfall, the client has to decide how to meet the gap: pay more into savings, switch part of the loan to repayment, or plan to sell.
Clients relying on an ISA or other investments face the same question with less warning, because there is no projection on the statement. Ask for the current value and set it against the balance. Whether to keep the investments, add to them or cash them in is investment advice, which a planner gives.
Contact clients ten years before maturity, and again at five and two years. At ten years the client can still save, change the plan or switch to part repayment at a modest cost. At two years the options are fewer.
Your files show the maturity date and the plan recorded at the start. Run a list each quarter of interest-only loans maturing in the next ten years, and contact each client with a short message using the date and the plan from their own file. Offer a review of the mortgage and, separately, an introduction for the pension and investment side.
Clients approaching maturity in later life may be vulnerable through health, bereavement or a fall in income. Give clients time, offer to involve a family member or attorney where they want one, and put the options in writing.
If a client is in difficulty with the payments or the repayment date, the lender's forbearance options apply. Point the client to the lender and to free debt advice where needed, and record that you did.
No. That is pension advice. You can set out the lending options and offer an introduction to a planner, who advises on whether and how to use the pension.
Contact them as early as possible, explain the lending options and offer an introduction for the pension and savings side. Record the contact and the client's response.
It replaces the need to repay during the client's life, because the loan is repaid from the estate or a sale on death or a move into long-term care. It reduces what the family inherits, which is an estate planning question as well as a lending one.
Landlords ask brokers about moving their properties into a company. The lending you can advise on, the tax and estate questions you cannot, and why a landlord's retirement plan belongs in the same conversation.
Read it
How the four Consumer Duty outcomes apply when a broking firm introduces clients to a financial planner, and what your file should show for each.
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What happens to the mortgage after a joint borrower dies, what the surviving client needs from their broker, the pension questions that follow, and when to offer an introduction.
Read itYour firm keeps the mortgage and protection advice. Equity & General gives the pension, investment and estate planning advice, and a named partnership manager sets the arrangement up with you.