Interest-only loans: how to defuse your mortgage time bomb The CML said many of these loans had a "comfortable equity cushion," because houses had increased in value since the loans were taken out. However, Steve Lowe from Just Retirement, the equity release specialist, said this was "missing the point" since customers would have to sell their homes to pay off the mortgage and might not want to. "Downsizing is an alternative for customers content to move home but the costs of downsizing can be between 5pc and 10pc of the house value," he said. Mortgage brokers said lenders were increasingly reluctant to lend to those approaching retirement and might force borrowers on to short-term capital repayment mortgages with expensive monthly payments that they could not afford. "This issue will come up time and time again," said Stuart Gregory from Lentune Mortgage Consultancy. The only option for these people will be for the lenders to switch them to a repayment mortgage. They have to be able to show some flexibility. Lenders are already turning the screw on the amount of equity that they will require from those with interest-only mortgages. Several lenders announced recently that they were tightening their requirements for interest-only loans. RBS, which owns NatWest, said interest-only mortgages would be available only to those who earned a minimum of £50,000 gross basic salary per annum, and that loans would be considered only on an individual basis. Coventry Building Society said it would raise its minimum equity requirement to 50pc. Santander and Nationwide have also changed the criteria for their interest-only deals in the past few months. These changes, which come after the Financial Services Authority recommended revisiting the rules on interest-only mortgages, are being exacerbated by changing rules on lending to older people. "It is much more difficult than it used to be to get a mortgage into retirement," Mr Boulger said. We're in this bizarre situation where more and more people are working longer, but they can't get a mortgage. The problem has been created partly by the endowment mortgage frenzy in the late Eighties. Home buyers were encouraged to take out interest-only home loans backed by with-profits investment policies. These were meant to pay off the mortgage and provide an extra lump sum if investment returns were good. However, most have not delivered on this promise, and many home buyers will be left with a shortfall between what their policies will pay out and what they owe on their mortgage. Experts fear that those coming to the end of their mortgage deals may become "mortgage prisoners," unable to get a mortgage elsewhere and trapped on whatever deal the lender will offer them. In extreme cases, mortgage companies can apply what is called a "forced repayment loan" to a customer who has come to the end of their mortgage term and has not paid back the capital. These can be over a relatively short period, such as 10 years, if the customer is older. Borrowers approaching retirement may therefore find themselves with sudden high monthly repayments. For example, according to the CML the average interest-only mortgage maturing this year is £59,000. This would cost £637 a month to pay back over 10 years with an interest rate of 5pc, whereas it would cost just £246 on an interest-only deal. The Co-operative Bank has begun a major campaign to deal with any of its customers who are struggling with this issue. It has targeted all customers who have 10 years or less remaining on an interest-only mortgage in order to find out what their strategy is and help them to discuss options to deal with any shortfalls. "We want to encourage those who are worried about repaying their loan to take action," said James Hillon, the bank's head of mortgages. Other banks said they would deal with customers on a "case-by-case basis." A spokesman for Halifax, Britain's biggest lender, said if someone came to the end of a term and did not want to sell their home they would be encouraged to convert to a repayment basis. "Even if the customer were past the age of 65 or self-employed we could still do this as long as they could demonstrate that it is affordable," she said. However, the bank would be unlikely to extend an interest-only loan if the borrower could not afford the capital repayment mortgage. Mr Boulger said customers in this position should consider talking to smaller lenders, which might have more flexibility on who they lent to and might be more willing to apply rules differently. Some building societies, such as National Counties, offer loans up to the age of 85. Mr Lowe said his company had also seen a sharp increase in the number of people using equity release schemes to deal with the shortfall. "Recent research conducted by Just Retirement shows that increasing numbers of people are using equity release as a way out of this problem," he said. However, equity release is controversial because the interest on the loan is rolled up and added to the debt rather than being paid off, meaning that there could be a large bill when the property is sold. Figures released last week showed that many retired people were already entering their later years with a millstone of personal debt. According to MGM Advantage, the annuity company, the average retired person has £8,180 of personal debt - and that does not include secured debts such as a mortgage. Only 57pc of the retired population has no personal debt. Aston Goodey, a director of MGM Advantage, said: "These figures are alarming. As the cost of living continues to put pressure on household finances, many retired people will feel under growing pressure to take on debt to fund everyday living.