In today's world, where a growing number of people face the prospect of working well into their later years, it is hardly surprising that more people aged 70 and over are looking to secure mortgage deals. Once upon a time it would have been difficult to secure lending past traditional retirement age, but happily this is no longer the case, and there are even products specifically designed for this phase of life. Read on to find out more.
As an older borrower, there are three mortgage types that you can choose from: a standard mortgage, an equity release scheme or a retirement interest only mortgage, which is a hybrid of the previous two.
You’ll want to discuss your retirement and mortgage options with a specialist adviser who will help you reach a decision on the type of mortgage for you based on your individual circumstances, but to help inform your decision, here’s a quick overview of what each option could involve.
At one time, mortgages would typically have a cut-off date of retirement age, in order to avoid people having to make debt repayments on a dramatically reduced income. These days, that’s no longer the case; realising that a lot of people don’t take out their first mortgage until their 30s and beyond, and that many keep working well past traditional retirement age, many lenders now set their maximum age limit as high as 80, so theoretically, it should be perfectly possible to be accepted for a new mortgage deal after the age of 70 (albeit with a short term). You’ll still need to prove affordability, however, so be prepared to jump through a few hoops.
The minimum and maximum ages for which a provider will accept mortgage applications will be shown in their lending criteria. These ages apply to either the age at the time of application or the maximum age a borrower must be at the end of the mortgage term. Age restrictions still apply, so the final decision to lend will always be at the lender's discretion; furthermore, due to the increased risk of lending to an older borrower, the term of the mortgage will often be decided accordingly.
Despite the restrictions it’s still perfectly possible to secure a mortgage as an older borrower, but if this doesn’t seem appropriate – if you’re planning to retire and won’t have the available income to cover the repayments, for example – other options may be more suitable.
Equity release (otherwise known as a lifetime mortgage) is a form of later life lending that allows you to release some of the equity built up in your home as a tax-free lump sum (or if you opt for a drawdown plan either smaller amounts as and when you need them or regular payments). Interest is charged on the amount released, but unlike with a traditional mortgage, there aren’t any repayments to make during your lifetime – unless you choose to make them – which could make this form of borrowing particularly suitable for those who will have a limited income in retirement.
There are two main types of lifetime mortgage – lump sum and drawdown (home reversion schemes are another type of equity release, but these require you to effectively sell all or part of your home to the provider and be given the proceeds, rather than borrowing in the form of a mortgage). Lump sum plans allow you to release a single tax-free lump sum at the outset, with interest charged and rolled up on the full amount until the loan is repaid. Drawdown plans allow you to release smaller sums when you wish, with interest only charged when each amount is released.
Your equity release provider will decide how much to lend you based on several factors, including your age, the value of your property, and even your medical history. In some cases, certain medical conditions can mean they’re able to lend you more than with a standard plan, and it’s worth bearing in mind that the older you are when you apply, the greater the proportion of your home’s value you can borrow. Read our guide to find out more about how equity release works.
A retirement interest-only (RIO) mortgage is a relatively new product available to older borrowers. In essence, it’s similar to a standard interest-only mortgage in that borrowers only have to repay the interest for the term of the mortgage, making it a lot more affordable for those on a reduced pension income. Indeed, it’s often used as a way to repay an existing interest-only loan, making it a great option for those who don’t have another way to repay the capital. A RIO mortgage is often thought of as a halfway house between a standard mortgage and equity release. The affordability criteria will be easier to meet with a RIO mortgage than a standard repayment one, yet regular payments are still made, meaning that only the capital has to be repaid at the end of the mortgage term – which is achieved on the sale of the property, when the borrower goes into long-term care or passes away. Anything left over from the sale goes to the home-owner’s beneficiaries.
There are any number of reasons that you might want a mortgage in retirement, but perhaps the most pressing one is that you’ve still got a mortgage that needs to be paid off. In this case, you may want to consider remortgaging to a standard deal (if you’ve got the necessary income to pass affordability checks), or perhaps a RIO mortgage could be more suitable.
However, it could also be because you want to give your finances a cash boost by releasing some of the equity built up in your home, in which case a lifetime mortgage may be more suitable. Once released, you’re free to spend the money as you wish, be it to supplement your income, make home improvements, or even give an early inheritance to your loved ones.
If you’re opting for a traditional or RIO mortgage, you’ll need to continue making repayments for the term of the loan. Lenders will want to be sure that the mortgage is affordable both upon application and in the future, and most will want the mortgage to be funded by regular income.
To improve your chances of being accepted, make sure you’ve got the capacity to make the repayments. Lenders will take into consideration all sources of income, such as pensions and other investments, to ascertain whether the loan is secure. Remember that, essentially, the mortgage lender needs confirmation that the loan can be repaid each month. If you can’t prove affordability, having a younger relative or friend acting as a guarantor could be another alternative; if you are unable to make repayments, for whatever reason, the guarantor will need to make the repayments instead.
Remember that, as with any mortgage application, any marks on your credit history will affect the underwriter's final decision, so it’s important to make sure that your score is up to scratch.
But what about when it comes to equity release? In this case the rules are slightly different – you don’t need to prove affordability as the loan doesn’t need to be repaid in your lifetime (unless you opt for a repayment plan, in which case you’ll still need to make sure you can afford the repayments). Indeed, equity release is often used as a way to boost retirement income, or can even be used to repay an existing mortgage, so could be worth considering for those who don’t have the capacity to fund a more traditional borrowing option.
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.