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Borrowing Into Retirement

Regardless of whether you’ve been financially prudent for a long time, there are as yet critical choices you’ll need to make in your later years. Normally, your first thoughts will be connected to your pension and setting up a will, but these days, many individuals are trying to re-mortgage their property or potentially renegotiate the financial considerations on their home.

The need to renegotiate in later life can be the consequence of various challenges and hardships. From those with an interest-only mortgage who are struggling to pay off the capital element to those hoping to acquire more cash to repair their property or purchase the idyllic holiday home they’ve constantly longed for, refinancing makes sense.

Cautiously arranging your funds into your later years can enable you to enjoy a great standard of living well into retirement.

If you’ve lived in your home for a sufficiently long time, it may have increased in value. You might need to discharge a portion of this value to enable you to make the most of your retirement or pass it on to our loved ones.

In this guide, we’ll consider your options and help you find the ideal solution to your needs.

Interest Only Mortgages

Many householders have an interest-only mortgage on their property. The 1990s saw this style of mortgage achieve its peak popularity and prior to the financial crisis, interest-only mortgages accounted for 33% of all home mortgages sold.
People with this style of mortgage hoped that house prices would continue to rise to ensure that the sale of the home would cover their mortgage, but of course, this hasn’t always been the case. Many householders have found themselves with a considerable level of debt to pay off at the end of their term.

What happens if I cannot pay off my mortgage?

If it looks like you are unable to pay off the mortgage at the end of the term, you need to consider your options. Increasing your monthly payments may be an option to consider, allowing you to put money aside to meet the capital component of your mortgage. In any regard, speak to your lender and they may be able to provide you with a solution.

If your current lender won’t allow you to change the nature of your mortgage, you may wish to consider switching lender. You may be able to find another lender who is more sympathetic to your plight. If you can find a new mortgage that you can afford, and which will let you pay off your home, you will feel more confident about the future.

Releasing value in your property

An option that many households consider in their later years is releasing value in their home. This is not a solution for everyone, and it does more harm than good to some people, but for some households, it is an option that is worth considering as it provides you with flexibility when you need it most.

Scale back your spending

It is important that you review your finances and make decisions on what you can and cannot afford. It is likely that you will want to cut back on certain aspects, making savings if you can. This may be to everyday items or it could be on your house.

A lot of people consider downsizing, where they move into a smaller home, to be an effective way to deal with their financial and property issues.

What other options do you have?

There will always be other options in life. You may be fortunate enough to have savings you can use, investments you can release or loved ones you can turn to. It is vital that you know what your full range of options are as this will help you to move forward with greater confidence.

Borrowing in retirement

Other than downsizing, there are many ways that you can release cash that is currently tied up in your property. Homeowners may have the chance to mortgage or re-mortgage their property to gain access to more value from their home.

However, people should be aware that re-mortgaging or borrowing money against a property can be more difficult if you are in your later years. This is because mortgage lenders not only consider your ability to pay now, they consider the future too. As you reach retirement age, many people’s income level falls, and this means some lenders will question whether you have the means to pay off a loan. If a lender doesn’t believe you can pay off this loan, they are unlikely to grant you access to a mortgage or re-mortgage options.

Things to consider about borrowing into retirement include:

  • The level of income you will receive in retirement
  • The length of time you are looking to borrow money for
  • How you will pay everything off

The retirement age in the United Kingdom is moving towards 70 and it is likely many lenders will accept that borrowers will work beyond 70. This means the financial calculations that people and lenders have used in the past may need to be adjusted to take this into consideration. There will be some lenders who will loan to people in their 80s and 90s but understandably, not every lender will.

Your credit score is important and the better the score, the more likely it will be that you get a loan. There will be lenders who will not grant you access to a mortgage that will only be paid off after retirement, and you will need to prove that you have sufficient income to pay off a mortgage each month.

If you are yet to retire, it is likely you will need to contact your pension provider to obtain:

  • The expected retirement date
  • The pot value of your pension
  • The expected income you will receive in retirement
  • Specialist mortgages for people aged 55 and older

Given that we are an ageing population, some lenders are keen to tap into this market. There are some lenders who provide long-term secured loans for people who are 55 years or older. These mortgages are like standard mortgages and the borrower is expected to pay interest each month and the amount that can be borrowed will depend on income and outgoings.

The maximum term associated with this style of mortgage is when the youngest borrower reaches the age of 95.

Anyone taking out an interest-only mortgage at this age will need to show they have a suitable strategy for paying off the capital element of the property.

Strategies to consider include:

  • Downsizing your home and using the balance of the sale to pay off the term
  • Selling other property you may have
  • Selling investments you may have
  • Equity Release schemes

You will find that equity release schemes come in two main forms:

  • Lifetime mortgages
  • Home reversion schemes

If you have no mortgage left to pay or a small mortgage left to pay, this may be a suitable option for your needs.

A lifetime mortgage

With a lifetime mortgage, you will receive a lump sum which stands against the value of your home. There is normally a minimum age for this style of mortgage, around 55 or 60, and you don’t have to make a monthly payment with this style of mortgage.

You don’t need to make monthly payments because these payments are added on top of the money you have borrowed. You only repay the mortgage when the house has been sold, you die or you move into long-term care.

Bear in mind that while this sounds appealing, your overall loan will increase each month, reducing the amount of money you can leave to people you leave behind.

Home reversion schemes

This scheme is based on selling some of your home, or the entire home, to a company specialising in equity release. This is likely to be lower than the market value of your home, but the money can be received as a lump sum or as a regular income. When you die or go into long-term care, the company will sell your home and claim back what they are owed.

Can you help your loved ones on to the property ladder?

It is fair to say that many youngsters struggle to step onto the property ladder these days, and this means many people are keen to help their loved ones as best as they can. There are steps you can take to assist the people you love, including:

Act as a guarantor with a guarantor mortgage, where you guarantee you meet repayments if the household is unable to make these payments

Obtain a joint mortgage where your income and the income of your loved ones are considered, you will be on the title deeds and you will be responsible for monthly payments

Re-mortgaging your home is an option that will allow you to free up some cash in order to help your loved ones. This is of benefit for many people because your name will not be placed not the title deeds, although you will not have any say in what happens with the new property

You may be able to arrange a joint borrower sole proprietor mortgage, where you support the mortgage application, but your name isn’t placed on the title deeds

Arrange a springboard loan where you lodge money in support of the deposit, placing money into a savings account that acts as a backup if the buyer is unable to pay a deposit or make monthly payments

Are you considering buying a holiday home?

It may be that you dream of enjoying a holiday home in retirement. One option to consider when looking to finance this deal is to borrow against your current home.

If your holiday home will be for your own personal use, you will require a residential mortgage and the process of obtaining this mortgage is the same as applying for a standard mortgage. Don’t forget that there are stamp duty considerations with respect to buying a second home, and this will increase the amount of money you need to spend on buying your home.

If you are looking to let your holiday home, you may need a holiday let mortgage. This is a specialist style of mortgage and not available from every lender. Given that holiday homes often have seasonal interest, income is not spread evenly throughout a year, and this can impact your ability to obtain a mortgage.

Make sure you speak with a mortgage specialist to obtain information and guidance on how to approach obtaining a mortgage for a holiday home you wish to let.

Anyone looking for support and guidance in finding the right mortgage in their later years should get in touch and we will be happy to help.

Talk to the mortgage experts.
Call us on 01322 907 000
or enquire now

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