Older borrowers may soon be offered mortgages that last a lifetime and do not have to be repaid until they die or go into care.
These so-called ‘mortgages for life’ could be available next year after the City watchdog revealed plans to give the loans the green light.
A number of smaller banks and building societies have already committed to offering this new type of loan, with bigger lenders expected to follow suit.
The move is expected to throw a lifeline to the thousands of older borrowers trapped on interest-only mortgages that they cannot repay.
These homeowners would be able to continue to pay only the interest on their loan and not have to worry about selling their house to repay the debt.
Older borrowers may soon be offered mortgages that last a lifetime and do not have to be repaid until they die or go into care
The City regulator said last week that it is prepared to abolish red tape that currently prevents retired homeowners from taking out mortgages that last until death.
Last night OneSavings Bank and a host of building societies pledged to offer these loans if the City watchdog pressed ahead with its plans.
A new lender, Mortgages4Life, also plans to offer these mortgages when it launches in the middle of next year.
High Street giants Santander and HSBC welcomed the announcement but said they would wait to see the Financial conduct Authority’s (FCA) final rules next year before deciding their own plans.
John Eastgate, sales director of OneSavings Bank, said: ‘We would absolutely look at considering this type of loan borrowers.
‘Lending into retirement has been a major issue for the past couple of years, so now the Financial Conduct Authority has come out with this proposal I think it will open the gates to allow lenders to begin to offer these mortgages.
‘And I don’t think it will be small lenders wanting to offer them; major lenders will want to offer them as well.’
Simon Little, of Mortgages4Life, said: ‘The way we see it, most people in retirement now have pensions that are guaranteed for the rest of their lives. That makes them a safer person to lend to than someone in work who could lose their job at any moment. This is good news for borrowers.’
The regulator is currently consulting on the proposals, meaning the earliest banks could offer these loans is the middle of next year
At present, the regulator’s rules make it nearly impossible to offer mortgages for life.
Borrowers are required to have a clear plan in place to repay the debt when their loan ends, such as savings, investments or the sale of a buy-to-let or holiday property.
Under the new proposals, borrowers will be able to put forward the sale of their own property as a means of repaying their loan.
At the moment, lenders can only accept this repayment method if they believe the borrower has enough equity in their property to downsize.
But if the rules change borrowers would be able to use the sale of their home as their plan to repay their mortgage, and continue paying only the interest until they die or move into care.
The regulator is currently consulting on the proposals, meaning the earliest banks could offer these loans is the middle of next year.
The move will provide a boost to thousands of borrowers with interest-only mortgages that are struggling to repay because they have no means of paying back their debts.
An estimated 1.9 million people have interest-only mortgages. Of these, 30,000 are predicted to owe more than 75 pc of the value of their property when their loans end.
Ray Boulger, of broker John Charcol, said: ‘This is really good news for the thousands of people trapped on interest-only mortgages. Lenders have been nervous about offering options to these borrowers because they have been worried about how the regulator will react in the future.
‘So this is very welcome and will allow more lenders to offer help to these borrowers.’
Paul Broadhead, of trade body Building Societies Association, said: ‘There is clearly a demand out there for more options among retirees.
‘Some building societies already have interest-only options for retired borrowers and a number of our other members say they are looking at it too.’