Mortgages in retirement have become newsworthy as high street lenders now place restrictions on lending to consumers over age 65. This has led to increasing retirees concerns when either looking for new funding, or existing mortgagors looking to take additional borrowing. Worse still have been demands from high street banks such as Santander & Barclays demanding repayment of the outstanding balance when they would normally auto-renew.
Due to these age related lending restrictions, wider research is required into products such as retirement mortgages. These form of pensioner mortgages can act as an alternative funding source and have proved a financial lifeline for so many. By securing a loan on the property a retirement mortgage can provide a release of equity which can then be used at the homeowners discretion. Following this release, by making monthly payment of interest only will render the balance level for the whole term.
There are many reasons why retirees still require finance in their later years which include topping up pension income, home improvements, gifting to children and debt consolidation. There is also a need for lifestyle changes such as holidays, new car or purchasing 2nd home. With sufficient income & as long as borrowing within their means, mortgages in retirement are still available.
What is a Retirement Mortgage?
A retirement mortgage as the name suggests provides a mortgage that will run into the retirement years of an individual. This could be someone looking to raise capital prior to entering retirement, but wishing to maintain their lending into retirement. These retirement mortgages are based purely on affordability. Therefore, loan-to-value criteria of a retirement mortgage is usually irrelevant other than it meeting their capped lending limitations.
Due to these mortgages lending into retirement, they are also classed as a ‘pensioner mortgage‘. Subsequently, from a lenders viewpoint they need to establish the level of income following cessation of employment, as critically income is key to funding these retirement mortgage schemes. They need to confirm affordability can be maintained comfortably over the fixed term of the loan under new FCA & MMR rules.
How Does A Retirement Mortgage Work?
Retirement mortgages are regulated by the FCA and come in various formats. They usually differ from interest only lifetime mortgages as they can either run for a fixed term, at which point either repayment should ensue, they can have the option to be extended, or converted for the rest of their life. We can access the whole of the retirement mortgages market with lenders having availability to both capital & interest (repayment basis) and interest only mortgages.
By making monthly repayments of interest and/or capital the amount you have borrowed will thereafter either remain level or decrease. These monthly payments must be made & are contractual to the end of the term of the mortgage. This could mean repayment is necessary at the end of a fixed term by some form of repayment vehicle, if interest-only has been selected. This could be via sale of property, investment portfolio or remortgage onto a lifetime mortgage or voluntary repayment plan such as Aviva.
Alternatively, if the capital & interest retirement mortgage was held then no repayment vehicle would be required as this form of mortgage guarantees repayment at the end of the term. The final option of the lifetime retirement mortgage would only need repayment when the last homeowner has died or moved into long term care. At that point the house is sold by the executors, the lender repaid the outstanding balance & the remainder passes into the estate.
How Much Can A Retirement Mortgage Offer Me?
The basis of the retirement mortgage calculation is a combination of income and monthly expenditures i.e. affordability. Most lenders will only accept UK pensions, rental income or income from an investment portfolio. These must remain level or ideally indexed to future proof affordability in real terms. You can find online retirement mortgage calculators which can assess this figure.
Retirement mortgage lenders will require evidence of income which will include annual pension statements, bank statements or investment reports. Following receipt of the evidence, credit checks will also take place which in the post MMR world are very stringent in criteria. All this information, once collated will help the underwriters judge whether the loan requested will be approved or declined.
Is a Mortgage in Retirement Best Advice?
Retirement mortgages for pensioners are a long term commitment, thus it’s imperative that a full assessment of your financial position is taken before applying for such loans. As can be seen there are many repayment options available which a specialist retirement mortgage adviser can explain & make recommendations upon. An adviser can also explain the risks involved with certain mortgages in retirement and implications of missed payments.
To obtain more information on the options available you, we can provide advice from retirement mortgage specialists. Call us on FREEPHONE 0800 689 0925 or complete the contact request form here.
Further useful tools
These are retirement mortgage schemes. To understand the features & risks, ask for a personalised Key Facts Illustration. Your home is at risk if you do not keep up the repayments on your mortgage.