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.