Mortgage holders turn to equity-release loans to escape vulture funds

A high amount of mortgage customers are turning to an equity release provider to pay off mortgage accounts with so-called vulture funds. 

Spry Finance says it has seen an increase of 40% in mortgage switching in Q1 2023 compared to Q1 2022 by borrowers taking out an equity release mortgage and using some or all of it to pay off their existing mortgage.

David Brady, Director at Spry Finance, said the majority of customers who are borrowing to refinance debt are switching from mortgages that are held by investment funds.

“Spry Finance is seeing very strong growth in customer switching,” Mr Brady said. “Drawdown of Lifetime Loans being used to refinance existing mortgages has increased by 40% year-on-year from Q1 2023 compared to Q1 2022.

“This is a very substantial increase in the number of borrowers aged over-60 looking to switch lender. The majority of these customers are coming from investment funds and they are using a Spry Lifetime Loan to clear their existing mortgage.”

More than 100,000 distressed or non-performing loans were sold to investment funds in the wake of the 2008 financial crash. It is understood that 38,000 of these are on variable interest rates and vulnerable to interest rate increases – a figure which could be as high as 60,000 according to some reports.

Some customers are already paying interest rates of more than 8% following a series of six hikes by the ECB that have pushed up its lending rate by 3.5% since last summer. Most analysts expect at least two more rate rises this year.

Spry Finance Lifetime Loans are a form of equity release mortgage that are available only to those aged over 60. Thousands of mortgage holders trapped with investment funds could be eligible to move on to a lower interest rate with a Lifetime Loan – one that would be fixed for life.

Mr Brady added: “The people who are switching to Spry are older homeowners who are worried about the impact of rising interest rates on the affordability of their mortgage repayments. We know that some are being charged variable interest rates of more than 8% by the funds which hold their loans.

“They are concerned about being forced to sell their home and are looking for certainty about their payments. However, in most cases they are unable to re-finance with a traditional lender and lock-in a fixed rate because they are too old or have a previous credit issue.

“Refinancing their mortgage with Spry Finance provides certainty because the interest rate is fixed for life. It is a potential solution for older borrowers who are struggling with their existing mortgage – giving them the choice to stay in their home. 

“Monthly repayments are not required with a Lifetime Loan, but many borrowers choose to treat it like a regular mortgage and making repayments.”

The current rate for a Spry Finance standard lifetime loan is 6.45%; and 6.25% for a green loan. Spry’s funding model means that their interest rates are not directly linked to the ECB lending rate and don’t rise in line with it.