Many borrowers have little option but to turn to equity release after being refused capital repayment mortgages by lenders.
More than one in five people who took on the plans in the first three months used the funds to clear home loans, according to data from Key Retirement.
Under equity release, older homeowners are either in effect selling all or part of their home in exchange for a cash lump sum or regular income, or taking a loan out against value of their home, which is paid back through the property when the borrower dies or moves into care.
Homeowners have the right to stay in their homes until they die.
It’s estimated that around 600,000 people have interest-only mortgages that will mature by 2020.
The products were widely available before the financial crisis, and meant borrowers only had to repay interest – rather than the underlying loan – until the end of the term.
But many people didn’t have reliable plans for repaying lump sums at the end.
Some people have found it difficult to switch to capital repayment mortgages if the loan runs into retirement – amid stringent age rules from lenders – even though many have guaranteed pension income to make repayments.
Interest-only borrowers are typically 70-years-old and have £66,035 in outstanding debt, according to analysis last year by Age Partnership.
Now more people are using equity release to clear the loans, with £633 million taken in the first three months of the year compared with £414million for the same period last year.
Customers are on average releasing £73,610 of property wealth and as much as £117,000 in London, found the equity release market monitor.
Dean Mirfin, technical director at Key Retirement, said: “The pace of growth in the equity release market is accelerating rapidly and the year-on-year expansion this quarter underlines how property wealth is contributing to financial planning.
“Equity release customers are able to tackle a wide range of issues and the increasing popularity of lump sum plans underlines how record low rates for plans are providing vital support for retirement planning.
“With more than 1 in 5 releasing equity from their homes to repay mortgages as the first major wave of interest only mortgage maturities hits, it is certain that demand from people facing capital repayment deadlines will look to equity release as a solution.
“That makes it even more important for mortgage lenders to start engaging with equity release as a potential solution for their customers.
“Many are, but unfortunately not enough.”