Approaching retirement with an outstanding mortgage can be an unsettling prospect; however, it does not necessarily have to cause a major financial headache.

Increasingly, lenders are acknowledging the fact that more people than ever before need to borrow money beyond their retirement. Consequently, the market for post-retirement products and services is more dynamic and accessible than it has been in some time.

The affordability checks conducted by major banks and specialist lenders have changed significantly over the years. Today, eligibility is determined primarily on the basis of affordability, not simply the age of the applicant. This means that even if an individual’s income is set to decrease significantly when they retire, it will not necessarily count them out of the running.

As outgoings will also likely decrease and there may be other funds at their disposal, they could be eligible for a wide range of competitive products. Things like a state pension, private pension income, investment income, buy-to-let income, salary, or dividends could all be factored in when the lender conducts its affordability checks.

As affordability checks and related policies vary significantly from one lender to the next, independent broker support should be sought at the earliest possible stage.

“There are varying attitudes among lenders with regard to what income is acceptable, such as pensions, buy-to-lets, investments, etc.,” commented Mark Harris, chief executive of mortgage broker SPF Private Clients.

“Independent legal advice and power of attorney may be required.”

There is no shortage of options available

Older borrowers are being reminded to consider the wide range of flexible and affordable options available beyond the High Street. While some major banks are notorious for giving senior applicants anything but a warm welcome, some of the UK’s more flexible lenders consider all cases by way of individual merit.

There are even some specialist lenders with mortgage deals available with an upper age limit of 95. On the high street, the maximum age by which a mortgage must be paid off in full is usually much lower.

“More lenders have now extended the maximum age to which they will consider lending, such as Halifax up to 80 and Leeds building society up to 85,” said David Hollingworth, associate director, L&C Mortgages.

Retirement interest-only mortgages

One of the newer options available for older borrowers looking to extend their mortgage is the retirement interest-only mortgage. These kinds of mortgages can run until the property is sold, on death, or on a move into long-term care, as opposed to having a term at the end of which the loan must be repaid.

“Retirement interest-only mortgages work similarly to standard mortgages in that they are assessed for affordability, and you will need to make a monthly payment, but they do not have a set term,” commented Matthew Fleming-Duffy of Cherry Mortgage and Finance.

“There are also some more specialist lenders that offer retirement interest-only, including Hodge and Livermore Capital.”

Equity release is another popular option, though it must be considered strictly under the advisement of an experienced independent broker. The cost-effectiveness of equity release products differs significantly from one provider to the next and could, in some instances, adversely affect the borrower’s financial position.

“The potential issue with this is that interest is still charged and will compound over the years, which in turn means that there will be less cash left to pass on to beneficiaries,” said Mr Fleming-Duffy.

The prospect of owning your home is particularly tempting when there is the offer of a huge discount on the table. Introduced in 1980 by Margaret Thatcher, the Right to Buy scheme provides qualifying council house tenants with the opportunity to purchase their properties at a heavily discounted rate.

Depending on how long you have lived in a council house, you could qualify for anything up to £84,200 off its true market value (£112,300 in London).

For the most part, eligibility is determined solely on the basis of the length of time you have resided in social housing. Full details of eligibility requirements can be found on the government’s official Right to Buy website, where there is also a quick eligibility quiz you can take to see if you could qualify for a discount.

But even if you are able to benefit from a significant discount on your home’s market value, there are other factors to consider before going ahead. Primarily, you need to consider objectively whether you can comfortably afford homeownership.

Additional costs and outgoings to consider

The reduced purchase price of your home could be well within your means, in terms of the subsequent monthly mortgage repayments, of course. Along with the price of the property itself, you will also need to consider whether the following can be comfortably covered by your budget:

• Mortgage fees: Setting up a mortgage can be surprisingly expensive, with a variety of arrangement fees, administration fees, and setup fees imposed by most major lenders.
• Conveyancing: This refers to the main legal fees you will need to pay when purchasing your home, for the services of a conveyance solicitor.
• Survey: Though not technically a legal requirement, it is essential to organise a thorough survey of your property to ensure there are no major issues prior to purchasing it.
• Stamp duty: Properties valued at less than £250,000 are currently exempt from stamp duty taxation, though the current suspension is set to expire at the end of September.

The total combined costs of these additional fees can often reach up to several thousand pounds, which needs to be paid upfront for the transaction to go ahead, as opposed to being covered at a later date. Funding can be arranged with bridging loans if needed.

Deposit requirements

It may be possible to use your Right to Buy discount as a form of equity as an alternative to paying a deposit. This is something that differs significantly in accordance with lenders’ individual policies.

Are you planning on relocating?

It is important to remember that right-to-buy mortgage discounts are offered on the condition that the property’s buyer does not subsequently sell their home too quickly.

If you put your home on the market after perching it at a discounted price, you will be required to pay back a proportion of the discount, as follows:

• 100% if you sell in the first year.
• 80% if you sell in the second year.
• 60% if you sell in the third year.
• 40% if you sell in the fourth year.
• 20% if you sell in the fifth year

This could therefore significantly affect the affordability of your property purchase if you intend to relocate at any time in the near future.

For more information on any of the above or to discuss the potential benefits of Right to Buy in more detail, contact a member of the team at UK Property Finance today.

Individuals who received government grants during the pandemic due to a loss of earnings are being unfairly scrutinised and automatically rejected by some of the biggest banks on the High Street.

A report published this week by the BBC suggests that several major lenders are refusing to accept mortgage applications from people on furlough or those who received financial aid from the government during the COVID-19 crisis.

Brokers have reported that workers within the entertainment, hospitality, and travel sectors are among the worst affected, being refused help outright irrespective of their current financial position.

Such applicants are being treated as ‘high-risk’ cases by major lenders, purely on the basis of having received financial support they were legally entitled to.

“I almost feel like I am being treated like a bankrupt, in some way, that I am being penalised for something that wasn’t my fault,” hospitality worker Lisa Harding told the BBC.

A 49-year-old first-time buyer with a 10% down payment saved, Ms Harding said she cannot get her mortgage application through the door due to the fact that she was furloughed from her hospitality job during the pandemic.

Despite having now returned to stable full-time work, she cannot get a mortgage on the High Street.

“I feel unfairly penalised. Furlough has been brilliant in that it has protected my job. But I didn’t expect to come out of the other side: with a deposit, no debt, a perfect credit rating, all the things that should make me an ideal first-time buyer, only to find out that banks just will not lend to me at all,” she said.

Self-employed individuals also struggle

The BBC’s investigation found that the Royal Bank of Scotland and NatWest, two of the biggest lenders in the UK, have been automatically declining mortgage applications from individuals who used the government’s self-employment income support scheme (SEISS) during the pandemic.

“As it stands, we aren’t accepting applications from customers who have applied for a SEISS grant on or after July 14, 2020,” a spokesperson told the BBC.

“As a responsible lender, this is part of the bank’s affordability criteria.”

Applications are being denied on the basis of SEISS grants alone, without taking the applicant’s wider financial circumstances into account.

The Yorkshire Building Society and TSB said such applications would be considered, though the applicant would need to present extensive evidence of the recovery and financial performance of their business.

Many banks are imposing much higher deposit requirements for self-employed workers; at Santander, the minimum deposit requirement for self-employed individuals applying for a mortgage is now 25%.

The BBC reported that most of the lenders it reached out to, including Virgin Money, TSB, the Yorkshire Building Society, and Lloyds, said that they were not currently accepting mortgage applications from individuals on furlough.

The hysteria surrounding the temporary stamp duty holiday will live long in the minds of many. Not that it has yet come to a complete end, with the extension of certain privileges to homebuyers having once again been extended until the end of September.

By acting fast, homebuyers picking up properties for no more than £250,000 still stand to make significant savings.

But while much of the attention has been focused on this sector, the UK’s remortgage market has also been booming this year. More importantly, the same is predicted to continue for the months to come, which could result in 2021 becoming one of the biggest years for remortgages in some time.

Optimistic projections

According to the latest figures released, a total of £183.2bn of mortgages will mature this year. There will be certain times during the year when major spikes will occur in the number of mortgages exiting their initial fixed or variable period. For example, approximately £29bn of mortgages will be moving to standard variable rates in October.

This represents a huge contingency of customers, new and existing, who need to prepare for significantly higher mortgage rates within the next few months. All at a time when their financial situation may already be far from perfect as the effects of the COVID-19 pandemic continue to linger.

The sheer size and potential of the remortgage market for the rest of the year have prompted a growing number of lenders to introduce incentives and review their pricing structures in order to make their products more appealing.

For lenders, it represents an invaluable opportunity to help borrowers avoid the potential costs of being shifted to a less competitive SVR mortgage. For the borrower, the sheer competition among lenders is likely to result in rock-bottom remortgage rates as the ‘price war’ plays out.

The benefits of broker support

This is likely to continue emphasising the importance of independent broker support. It is inevitable that many borrowers will find themselves in a position where the most cost-effective option is to remortgage with a new lender. A process that begins by conducting a whole market comparison, factoring in the various costs and potential penalties involved in transferring providers.

In addition, established brokers are able to provide access to special deals and incentives that are not available on the High Street. Often, applying via a broker is the only way to gain access to the most competitive deals available.

Should it prove the case that competition among lenders peaks over the autumn period, an intensive market comparison (incorporating specialist independent lenders) could hold the key to significant savings.

Whether you are planning ahead or fast approaching the end of your introductory fixed-rate period, we would be delighted to conduct an extensive comparison on your behalf to find you an unbeatable deal. Call the team at UK Property Finance anytime for an obligation-free consultation.

The appeal of building your own home from scratch is undeniable. Purchasing an attractive property is one thing, but customising every aspect of your dream home from the ground up is something entirely different.

But what must also be taken into account when considering a home-building project is obtaining the appropriate funding. Self-build mortgages are widely available in the UK, but they are not quite the same as conventional home loans.

What is a self-build mortgage?

Self-build mortgages are home loans granted for the purpose of building a property from scratch. They differ from a conventional mortgage because there is no specific security for the property to issue the loan against.

Instead of being granted the money as a lump sum, a self-build mortgage is released in a number of stages. This helps mitigate at least some risk for the lender, who can decide if and when further funds should be allocated to the project.

At which stages are self-build mortgage funds released?

Policies vary between lenders, but most allocate funds across the same basic series of stages as follows:

• Upon purchasing land and obtaining planning permission
• When the foundations for the property are laid,
• Upon completion of the basic structure
• When the roof is fitted and the property is weatherproofed,
• After the first fix jobs are completed (like plastering),
• When the second fix stage is completed (plumbing and electrics),
• Upon certification of completion by a surveyor

The amount of money released at each of the stages will be specified in the loan contract, which varies significantly from one lender to the next.

What types of self-build mortgages are available?

There are two primary types of self-build mortgages, categorised on the basis of when the funds are released:

Advance: This type of self-build mortgage provides the borrower with the funds they need prior to each major stage of the build. It is often the only viable option for those who do not have significant funds on hand to cover the costs of the project in advance.

Arrears: This is where the funds are released following the completion of each major project stage. This is sometimes a more cost-effective option as it is considered lower-risk by the lender and is also the most widely available type of self-build mortgage.

Who qualifies for a self-build mortgage?

Lending criteria for a self-build mortgage are slightly different from those of a conventional mortgage. For example, you will usually need a larger deposit to qualify—typically a minimum of 25% of the total project costs.

Depending on the type of mortgage you intend to apply for, you may also need to provide evidence of having enough money available to cover the initial stages of the project. Lenders expect to see detailed projections and breakdowns of costs, along with evidence that all possible contingencies have been planned for.

Getting a good deal on a self-build mortgage

As with all home loans, the key to getting a good deal on a self-build mortgage lies in comparing as many options as possible from a broad pool of providers. At UK Property Finance, we conduct whole-market comparisons on behalf of our clients in order to find unbeatable deals from an extensive network of specialist lenders.

Call today for an obligation-free consultation, or email anytime, and we will get back to you as soon as possible.