https://www.lovemoney.com/guides/52336/mortgages-for-older-borrowers-who-will-lend-and-the-risks
Mortgages for older borrowers: who will lend and the risks
MORTGAGES AND HOMEGuy Kilty Updated on 12 December 2018
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MORTGAGES FOR OLDER BORROWERSRETIRING WITH DEBTSTANDARD RESIDENTIAL MORTGAGESRETIREMENT INTEREST-ONLY MORTGAGES (RIOS)LIFETIME EQUITY-RELEASE MORTGAGES
Mortgages for older borrowers
There’s one area of mortgage lending that has changed significantly in the last year or so, and that’s the range of options on offer for the over 65s.
All sorts of lenders are starting to provide new products to cater for the different needs of older borrowers as the way people view mortgages in retirement shifts.
That’s because, for a long time, the common wisdom was that by the time you retired, you’d have paid your mortgage off.
You could then either live comfortably in your mortgage-free house until you died or went into care or downsize with the cash generated from selling it.
More recently, though, that view has changed.
Retiring with debt
“There are two big reasons why people are looking to take out new mortgages beyond the age of 60,” says Joy Bowden, a qualified specialist in mortgages for older borrowers at Mortgages with Joy Ltd.
“The first is that many people of the million or so borrowers on interest-only mortgages are approaching the end of their mortgage term and they don’t have a way of repaying the outstanding loan. If they want to stay in their home they need to arrange a new mortgage.
“The second is that many people approaching retirement are asset rich but cash poor, and they want to release some of the equity in their home to take as a lump sum or use as an income.”
So what are the options for people looking to borrow in their later years?
Standard residential mortgages
The first option is to go to the high street lenders to see if they’ll give you a standard residential mortgage. “Their fees and interest charges will generally be the lowest available,” says Joy.
Most high street lenders will not let a mortgage term run past a borrower’s 65th or 70th birthday, but they do sometimes consider lending beyond those ages if the borrower’s retirement income meets their lending criteria.
For example, at the time of writing the Post Office offers an interest-only mortgage with a term that lasts until the borrower reaches the age of 80 and a repayment mortgage that can run until the borrower reaches 90.
Meanwhile, Aldermore’s Later Life Lending mortgage range offers loans that can be repaid up until the borrower gets to the ripe old age of 99.
The key is that each lender’s age limits are different so shopping around is essential. Speaking to a specialist mortgage broker can also be a good idea, as they’ll know which lenders will be able to offer you something and which won’t.
Once you’ve found a lender that will consider handing their cash to you, it’s then affordability which will be key to whether an application is successful, as you’ll have to be able to prove exactly how much you’ll be earning – and spending – in retirement.
Mortgage
Interest rates from
Maximum age to repay
Maximum size
Aldermore Later Life Lending
Varies
99
£25,000
Hodge 55+ Mortgage
3.50% fixed/2 years
95
60% of property / £1 million
Post Office Retirement Link – repayment
3.18% fixed/5 years
90
50% of property / £500,000
Nationwide – Borrowing in Retirement Scheme
Varies
85
60% of property / £500,000
Post Office Retirement Link – interest only
3.18% fixed/5 years
80
30% of property / £300,000
Retirement Interest-Only Mortgages (RIOs)
If you don’t know exactly what you’ll be earning in retirement or you won’t be able to afford the repayments on what will typically be a shorter-term standard residential mortgage, there are other options.
The first, and newest option is a Retirement Interest-Only – or RIO – mortgage.
RIOs have sprung up in the last few months following the financial regulator’s decision to give them the green light in March and they allow borrowers to pay just the interest on their loan until they die, sell the property, or are taken into long-term care.
To give you an idea of what you’d be paying, Leeds Building Society currently offers a RIO with a two-year fixed-rate of 3.34% and a product fee of £999.
Applicants must be aged between 55 and 80 and the maximum loan to value is 55%.
If you go for a three-year or five-year deal its fixed rate goes up to 3.49% and 3.62% respectively.
Meanwhile, Hodge Lifetime’s two-year fixed RIO has an initial interest rate of 3.5% and it’s five-year fix charges an initial rate of 3.9%. They are available to over 55s and have a product fee of £999 and a maximum loan to value of 60%.
Affordability will be key again, of course, whichever lender you choose.
Mortgage
Interest rates from
Age range
Maximum size
Leeds Building Society
3.34% fixed/2 years
55 - 80
55% of property
Hodge 55+ RIO
3.59% fixed/2 years
55 - 85
60% of property / £1 million
Tipton 3 year discount retirement interest only
3.34% (variable)
55+
60% of property / £1 million
Lifetime equity-release mortgages
The second option is to go for what’s known as a lifetime or equity release mortgage.
These have been around for a little longer than RIOs and as things stand there are four different types, all of which allow homeowners to release equity in a different way.
Lifetime interest roll-up allows homeowners to borrow money against the value of the house without having to make monthly repayments. Instead, the debt interest is added to the debt each month.
Home Reversion involves the borrower selling a percentage of their property to a lender in exchange for an income or lump sum. No capital or interest payments are made and the lender takes their percentage of the sale price when the home is eventually sold.
Lifetime mortgage on a drawdown basis sees the borrower agreeing to take out a loan and then receiving it in regular chunks. They only pay interest on the amount that has already been drawn down, so interest rolls up more slowly than with other types of equity release.
Finally, impaired lifetime mortgages are a roll-up product that takes the borrower’s health into account, often giving them the opportunity to receive a bigger income or lump sum if they are in poor health than they would otherwise receive.
These lifetime or equity release mortgages are not generally offered by the high street banks and building societies. Instead, they are offered by specialist providers such as One Family, More 2 Life and Pure Retirement, and insurers like Aviva, LV and Legal and General.
As always, it’s essential to shop around and it’s a very good idea to talk to a specialist broker, as they will know the market better than you ever could.
It’s now easier than ever to borrow past your 65th birthday but it can be complex, and it’s always worth speaking to an independent financial adviser too to find out the best option for your circumstances.
Mortgage
Interest rates from
Age range
Maximum size
Legal & General Home Finance
4.2% fixed
55+
£4 million
LV= Lifetime Mortgage – Lump Sum+
4.3% fixed
60 - 77
£1 million
Hodge Lifetime Lump Sum Lifetime Mortgage
4.4% fixed
60 - 85
£500,000
This post was originally posted by Love Money on the 12th December 2018. Written by Guy Kilty.