Guest Post for family-budgeting.co.uk from Ipswich Building Society
Up until just a couple of years ago, mortgage providers were reluctant to lend to older borrowers. In 2014, new legislation led many banks and building societies to restrict lending where the mortgage term would take the borrower over the age of 65. These days, lending has been somewhat turned on its head, and providers are now actively trying to attract this type of customer.
Later life borrowers – people looking for a mortgage from the age of 50 and beyond – are a diverse group, which calls for diversity in mortgage products to meet their varying needs. Recently, there has been a market surge in mortgage products to better enable borrowing in later life, and with one in ten current mortgage holders anticipating not being mortgage free until they are over the age of 70, it’s looking like these types of mortgages could become very popular.
Why are more people looking to borrow in later life?
There are lots of different reasons you might be looking for a mortgage beyond the age of fifty. Perhaps you took out an interest-only home loan, and although the monthly payments were manageable, unforeseen circumstances could mean that paying back the lump sum at the end of the term is no longer possible. The growing range of products for later life borrowers offer a practical way of dealing with your missing repayment plan, but they also present other opportunities:
Helping your birds fly the nest: Times have changed, and getting a foothold on the property ladder is difficult these days with wages stagnating and house prices rising. Consequently, the Bank of Mum and Dad hands out around £6.5bn of gifts and loans to children and grandchildren each year! Releasing equity in your home through a later life mortgage to gift to a family member could ease their struggle in saving for a deposit.
Finding your dream home for retirement: It’s not the case for everyone, but once your little birds have flown the nest, you might feel as if those empty bedrooms are a bit of a waste. Many people look to sell the family home and downsize to reduce the cost of maintaining the property, bring down the utility bills, and simplify life in general. You might have your eye on a small apartment with all the mod-cons, or perhaps a cosy cottage by the sea, and want to purchase and prepare for your move before selling your former family abode.
Making more of what you have: Maybe you’ve got big plans for those empty bedrooms? If you’re content in your current home but think it could be better suited to your new retired lifestyle, releasing funds with a later life mortgage might help you finance any renovations. A beautifully landscaped garden complete with conservatory, bright and airy open plan living, or simply a new kitchen or bathroom could be all that stands between you and your dream home.
Taking a holiday or travelling: A family holiday home ready and waiting for regular trips in retirement is a dream for many, and a later life mortgage could be the key to financing the purchase of a static caravan or motorhome. If you live in a busy town, perhaps you’d like to spend extended periods of time away from the hustle and bustle, having friends and family come and go, exploring the local area, and meeting new people.
Later life mortgage options
It’s important that later life borrowers fully understand what their options are, and select the most suitable mortgage product for their individual circumstances. It’s recommended that you seek advice from an independent financial advisor before making any decisions about your new mortgage.
A lifetime mortgage is a form of equity release and is designed to convert accumulated equity into regular income, drawdowns, or simply a lump sum. The cash reserve is calculated based on the value of your home and the age of the youngest homeowner. You can choose, out of that reserve, how much you withdraw, and make further requests in the future from the remaining reserve. Interest is charged on the amount withdrawn. Another type of equity release is home reversion where a tax free lump sum or income is received in exchange for all or part of the home. The amount received will be below market value, and is payable when the house is sold after the last homeowner either dies or goes into permanent care. No interest is accrued.
The retirement interest only (RIO) mortgage was authorised by the Financial Conduct Authority in 2018. Targeted at older borrowers over the age of 55, there’s no fixed term and repayment isn’t due until the last homeowner sells the home, dies, or goes into long term care. This means it’s not necessary to have a repayment plan in place. You’ll need to make monthly interest payments with RIO.
You could consider a residential mortgage from a provider who will lend to older borrowers. Currently, building societies dominate the market in later life residential mortgages, but the high street banks are catching on. These mortgages can be on an interest-only basis (where you only pay the interest due on the loan) or on a capital & interest basis (where you pay off the loan as well as the interest due). In either case, you must demonstrate your ability to repay the capital with a repayment plan.
Could a later life mortgage be an option for you?
Whether you’re just starting to think about it or already have plans to utilise the equity in your home, the later life mortgage market can be a little overwhelming. Comparing later life mortgages, and getting independent financial advice from someone with expertise and qualifications in later life lending is the best place to start.
I hope you have enhjoyed this guest post on borrowing in later life.