Friends have no capital to repay interest only mortgage can anyone offer some advice

Hi VIV123
The first question is, how on earth were they allowed an interest only mortgage in the first place with no investment vehicle to pay off the capital at the end of the loan??
Back in the 80's, assuming it was a 25 year mortgage, you needed an endowment, pension plan, investment account, or similar savings vehicle, to effectively guarantee the loan at the end of the period, or you would not have been able to get an interest only mortgage. I know this because that is what i did for a while in the 80's, arranged mortgages!!
Maybe they have sold the investment vehicle or cashed in the endowment, although it should have been lodged with the mortgage company which would have objected to any sale.
My first reaction is that they will lose the house. They have in effect been renting it for 25 years. With no means of repaying the capital i do not see any way they could sell the house to anyone, as they do not own it until they actually pay the amount they originally borrowed. I also do not see any way they could get any sort of equity release on the property as technically they do not own it.
Suggest they talk to their lender as soon as possible to see what may be done. They need to find out either why they were given that type of mortgage without being able to repay it at the end, or was it not properly established what their responsibilities were regarding the investment vehicle they originally had in place.
But they need to find out soon and not leave it until the last minute and risk eviction when the lenders repossesses.

I have an interest only mortgage and always have and no lender has ever checked my repayment ability, although my LTV is below 40%.

Your friend could probably re-mortgage if their LTV is low enough as lenders may disregard income (although it is a few years since I have re-mortgaged so it may have changed), they could switch to B-T-L, rent out and use the rent to finance a smaller rental for themselves. They could extend their term but would probably have to switch to LTV, their current lender is highly unlikely to ask for proof of income as long as they haven't missed too many payments. There other options that depend on your friends financial situation and age.

meant switch to SVR not LTV, all these three letter anachronisms get mixed up in my limited capacity memory :)

Interest only mortgages were all the rage back in the 1980s but lenders were far more savy making you take out an Endowment Policy to cover their loan when the mortgage period came to an end. In the late 90s and 00s lenders seem to have thrown out the idea of asking how people were going to repay the loan at the end of the time. This resulted in people borrowing far more than their salaries (single or joint) could easily repay. Borrowers then got into difficulties..... and the rest is history. Where has Prudence gone?

Hi VIV123 ....

This is indeed a sad situation but your friends would have had plenty of notice that this situation was imminent and it seems they have chosen to leave it all rather late.

To give proper advice here, even a decent financial consultant would need a full fact find of the overall situation before he could even start to discuss the matter.

MY thoughts here are actually quite simple ..... they should discount selling to a commercial purchase company at all costs and rent back ... that is a poor situation where someone else if profitting from someone else's dilemma. And can be fraught with dangers. Whether they could sell to a housing association and then rent back, I do not know but a chat with a housing options officer at their local council may be useful.

And if their income in retirement will not easily going to support any sort of mortgage salvage plan, they should consider selling, clearing the mortgage debt and renting, going into retirement. That way, should they fall into hard times, there is always the cushion of housing benefit to support them. This is of course assuming that they are not left with a substantial cash sum if they sell.