Mortgages in Retirement
We’re all living longer and healthier lives but our working lives have also changed significantly - big pensions and inflation protection salaries are no longer guaranteed and there is less job security overall. A growing number of us are finding that we have to work later in life to pay for a longer retirement and to make up for the smaller pensions we have accumulated throughout our careers. As a direct and indirect result of these demographic changes, our need to access mortgages later in life or even past retirement age is more important than ever.
With the regulator relaxing its stance on later life mortgages, banks and building societies have been revamping their policies and designing new mortgage products and solutions to meet the growing demand.
Is there a maximum age limit for getting a mortgage?
The short answer is no – mortgages are available in one form or another for someone of any age. Lenders have slowly been adapting their policies to allow borrowing at all stages of life provided it is affordable.
What mortgages can a pensioner get?
Standard Mortgage – Some lenders will now lend up to the age of 95 and some possibly even longer depending on circumstances. This will depend on your ability to comfortably afford the mortgage for the remainder of your retirement, even if interest rates go up and being able to prove this.
Retirement interest-only mortgages – Usually available to those 55 or over. These work in a similar way to standard interest-only mortgages in that you only pay the interest each month. You only repay the loan itself once you die, move into long-term care or sell the property with any remaining equity going to your beneficiaries.
Lifetime Mortgages/Equity Release – If you are the beneficiary of rising house prices, and you find yourself asset rich but do not have sufficient income to meet your expenditure needs in retirement, this type of mortgage lets you release that equity you have built up in your property. They received bad press in the past but with the help of better regulation and growing demand, interest rates are much lower and the terms much fairer, so they have their place for the right person. There are two types of Lifetime Mortgage – Interest Roll-Up and Home Reversion Schemes, both are very different and you will normally have to take financial and legal advice before arranging one. They can be set up so that you don’t have to make any monthly payments and the loan is repaid when you either die, move into long-term care or sell the property.
Older People’s Shared Ownership (OPSO) – This is a government-backed scheme and not a traditional mortgage, but it does offer a way for pensioners to have their own home. It allows you to buy a portion of a property and pay rent on the remainder. You can only buy up to a 75 per cent share, and once you reach this threshold you don’t pay any more rent.
What will lenders will want to know?
As with any mortgage, lenders will want to know that you can afford it. They will normally want to see a pension forecast, valuation or annuity statement so they can make this decision. They will also likely want to see your State Pension Forecast if you aren’t receiving it already.
Lenders will also, of course, want to check your credit score, so it is important to consider other financial decisions you make in the run-up to applying for a mortgage and how these might impact your chances of being accepted.
How do I get a mortgage as a pensioner?
Research is vital. You will need to compare age limits, term lengths, interest rates and all other eligibility criteria including how this will impact the rest of your financial arrangements. There are comparison sites to help you see what is available, but a mortgage adviser can give you access to a wide market of lenders and help you choose the one that is best for you and your circumstances.
What else should be considered?
Wills and Lasting Power of Attorney – Key milestones in life are also often a good time to update your Will and if you haven’t already arranged a Lasting Power of Attorney so that someone you trust can manage your financial affairs when you’re unable to. A Wills and Probate solicitor should be able to assist you with this.
Taxation and deliberate deprivation – You should be careful if you are releasing money from your property and gifting it away. This can have inheritance tax implications and if you need long-term care, the local authority may treat the transaction as ‘deliberate deprivation of assets’ and refuse to pay for your care needs. This is why financial and legal advice is so important in this area.
The cost of care provision – Depending on your circumstances, you may have to cover the cost for any care fees your partner may need or you may need domiciliary care – meaning you don’t move into a care home and receive care at your home. It is important to consider how you will be able to pay for any mortgage payments alongside care fees at the same time.
Lifetime mortgages can impact your eligibility for means-tested benefits. Your mortgage advisor should check this for you.
As members of the Equity Release Council and Later Life Academy, we are experts in helping to arrange later life mortgages of all types. Simply arrange a free initial consultation with one of our advisers and we will be happy to discuss all the various options that are available to you, the drawbacks and the costs.
Your home may be repossessed if you do not keep up repayments on your mortgage.