In an ageing population where we’re living healthier lifestyles and working for longer, more and more people wish to borrow into retirement. Although you may always have been prudent with your finances, benefit from a good pension and have a will in place, other important financial decisions can still arise.
You may want to take out a new mortgage to buy a property later in life, to remortgage your home to enjoy a better lifestyle or to release equity to help a loved one get onto the property ladder. Whatever your intention, borrowing into retirement can be complicated but, at Trinity Finance, we’re here to guide you through the options available and find the best solution to meet your needs.
Why might you need to borrow later in life?
There are various reasons why borrowing or refinancing can be appealing later in life. It can allow you to pay for refurbishments on your home, to buy a longed-for holiday home, to help a loved one buy their first property or to give you the means for a more enjoyable lifestyle. Another reason may be as a solution to your current interest-only mortgage, as we’ll explain below.
You have an interest-only mortgage
As a very popular choice during the 1990s, this type of mortgage accounted for a third of the home mortgages sold prior to the financial crisis and was deemed a good way to get onto the property ladder. Many buyers took out interest-only mortgages in the belief that property prices would continue to rise so that the equity they accumulated would more than cover the mortgage loan to be repaid at the end of the term. Unfortunately, this hasn’t always been the case and many homeowners have found themselves unable to repay the loan and left with a considerable amount of debt.
What are your options?
If you are now in this position, you need to consider your options. Ask your lender if the mortgage term can be extended and if it can be changed to a repayment mortgage. In this way, you can repay the capital and have a longer term to make the repayments affordable. If your lender won’t agree to this, you may wish to consider switching to another lender who is more sympathetic to your plight. A new mortgage that enables you to gradually repay the loan will help you feel more confident about the future.
Another option is to repay your mortgage by releasing some of the value tied up in your home. An equity release plan doesn’t suit everyone but it’s worth considering as it provides you with flexibility when you need it most. Our mortgage specialists, based throughout Kent, London and Edinburgh, can discuss this in more detail with you so that you are aware of the advantages and disadvantages of choosing this route.
Of course, you may be lucky enough to have savings you can use, investments you can release or loved ones you can turn to. You may prefer to consider downsizing instead, whereby you move into a smaller home and use the equity as an effective way to deal with your financial issues. Whatever happens, if you have an interest-only mortgage and know that you’re going to struggle to repay the loan, speak with one of our mortgage advisers sooner rather than later to get a solution in place. Call us on 01322 907 000 and one of our friendly advisers will be happy to help you.
What issues are associated with borrowing into retirement?
Increasing house prices and the need to pay a higher deposit result in many people having to wait until later in life to buy a property. When they do, they often need a longer term to be able to pass the affordability checks. This means that many buyers will still be repaying their mortgages when they are retired. Many lenders have maximum age limits for their mortgage products and others are reluctant to provide loans to older buyers altogether due to the risk involved when they retire and no longer receive a substantial income.
Lenders’ attitudes are changing
As the demand for longer terms and mortgages later in life has increased, however, lenders’ attitudes have gradually begun changing. As the retirement age is getting nearer to 70, many lenders understand that borrowers will continue to work until they are 70 so the affordability checks are based on the income received until that age. To borrow past that age, your investments and pension income would need to be accounted for. Some lenders have now reconsidered their maximum age limits for mortgage products and will now lend to people in their 80s and 90s. Some lenders have even done away with the age limit altogether.
You still have to fulfil the affordability criteria to be accepted for a mortgage. This will include details of your income and expenditure as well as a check on your credit history. If you are yet to retire, it’s likely that you’ll need to contact your pension provider for details of:
- The anticipated retirement date
- The value of your pension pot
- The projected pension income you will receive in retirement
You should also provide evidence of any investments you have to help support your application. Before applying for a mortgage or remortgage, think carefully about the income amount you will receive when retired, how long you want the loan term for and how the loan is to be repaid when the term ends. Our mortgage brokers can discuss this fully with you to help you make the right borrowing decision.
Ways to borrow in your retirement
As well as remortgaging, there are other ways to borrow in your retirement depending on your needs and circumstances. These can include a retirement interest-only mortgage and equity release for over 55s.
A retirement interest-only mortgage
Aimed at borrowers over 55, this type of mortgage is secured against your home and you only repay the interest due on the loan each month. Usually, the loan isn’t repaid until the property is sold, you move into long-term care or you die. This means you benefit from lower monthly payments than with a standard mortgage and you only need to prove to the lender that you can afford the interest repayments.
Although the amount you can borrow for an interest-only mortgage is usually lower than for a repayment mortgage, this is a good choice if you are retired and have a regular income, such as a defined benefit pension. If, as mentioned earlier, you have an existing interest-only mortgage and aren’t sure how you are going to repay the loan, then switching to a retirement interest-only mortgage is worth considering.
If you’re over 55, you can release some of the equity in your home via one of two equity release products — a lifetime mortgage or a home reversion plan. You can receive a lump sum, small amounts at regular intervals or a combination of these.
This is the most popular equity release product. The lifetime mortgage is secured against your home and you retain ownership of your property. What makes this attractive compared with a standard mortgage is that, as well as giving you access to cash that’s tied up in your home, the loan isn’t repaid until you either go into long-term care or die. Usually, the interest is compounded but some plans allow you to make monthly interest repayments to reduce the overall amount owed.
When you have moved into long-term care or in the event of your death, the loan and compounded interest are repaid by your estate. The downside to a lifetime mortgage is that the compounded interest continues to increase the total amount owed, reducing the value of your estate so that there is less to pass on to your beneficiaries.
Home reversion plan
With this equity release product, you sell part or all of your home to a provider for below the market value. In exchange, you receive a tax-free lump sum and a lifetime lease. You continue to live in your home without any restrictions and rent-free for the rest of your life. As this product isn’t a loan, no interest is payable on it. When you either move into long-term care or die, the property is sold and the provider receives its share of the proceeds. As with a lifetime mortgage, the nature of a home reversion plan decreases the value of your estate for your beneficiaries.
Equity release may affect your tax position as well as your entitlement to state benefits so be sure to speak with one of our financial advisers first. It’s also important to make sure your equity release product has a ‘no negative equity guarantee’. This protects your estate so that it is not liable for more than the value of your home when it is sold. Give us a call on 01322 907 000 to discuss equity release in more detail with one of our financial consultants. Alternatively, send an enquiry to us by email at firstname.lastname@example.org or via our contact form and we will reply to you as quickly as possible.
Are you considering buying a holiday home?
You may always have dreamed of owning a holiday home to enjoy when you retire. To finance this, you may decide to borrow against your current home or to get a mortgage for the new one. How easy it is to secure a mortgage depends on whether you’re going to use the holiday home yourself or use it as an investment and whether it’s in the UK or located abroad.
If your holiday home is for your private use, you will require a residential mortgage. Bear in mind that you will be liable for a second property stamp duty surcharge. To use the property as an investment for holiday lets, you will need a holiday let mortgage. This is a specialist type of mortgage and not available from every lender. Given that holiday homes often have seasonal interest, the income is not spread evenly throughout a year and this can impact your ability to obtain a mortgage.
Speak with one of our mortgage experts for information and guidance on how to obtain a mortgage for a holiday home you wish to rent out. Located throughout Kent, London and Edinburgh, they have considerable expertise in this area and know which lenders offer specialist holiday let mortgages.
Help your loved ones get onto the property ladder
It’s fair to say that many youngsters struggle to get onto the property ladder these days. Faced with high property prices, strict affordability checks and difficulty saving a big enough deposit, many first-time buyers look to family members to help them step onto the property ladder. If you’d like to help a loved one purchase their first home, they are different ways to go about it:
- Remortgage to release some equity. If you have equity in your property, you can remortgage it to release some funds. You can then give a lump sum of money to your loved one to use as their deposit.
- Get a joint mortgage. This type of mortgage lets you buy a property with your family member. You will both be named on the deeds and are both jointly liable for the mortgage. The lender will take into account both of your incomes plus any amount you may still owe on your existing mortgage. Be aware that as an existing homeowner, you may have to pay extra stamp duty charges.
- Become a guarantor via a guarantor mortgage. With this type of mortgage, you sign a legal agreement to confirm you will cover the repayments if your loved one is unable to make them. The lender usually requires you to be a homeowner or have sufficient equity to meet its requirements. You have to be able to cover the repayments for the new mortgage as well as your own one, either with your income or savings. You won’t be on the deeds or own any of the property but agreeing to be a guarantor can be the difference between your family member being able to buy their first home or not.
- Take out a joint borrower sole proprietor mortgage. With a JBSP mortgage, you are jointly liable for the repayments but you won’t be named on the deeds. This means your loved one can enjoy full ownership of their home while you help them out financially. It also means you won’t be penalised for a second property stamp duty surcharge. Both of your incomes will be taken into account by the lender when considering the affordability. When your family member’s position changes and they are ready to take responsibility for the mortgage repayments, they should remortgage and release you from the JBSP mortgage.
We can help you with your borrowing into retirement needs
At Trinity Finance, we understand the importance of being able to borrow into retirement. We can discuss your needs and advise you on the various options available to meet them. Having found the best solution for you, your dedicated mortgage consultant will oversee your case to ensure your borrowing requirements are fulfilled.
To get the ball rolling, speak with one of our qualified advisers on 01322 907 000 or send us an email at email@example.com. Located throughout Kent, London and Edinburgh, our mortgage specialists are ready to assist you in any way they can to ensure your borrowing needs are met later in life.