Whether you are looking to move home, access some of the equity tied up in your property, or reduce your monthly outgoings, there is a growing range of lending options available for today’s over-55s.
But with so many options to weigh up, how do you go about deciding which could be right for you?
Here, we discuss the two main later-life lending solutions: conventional mortgages and lifetime mortgages, and why the demand for greater flexibility has come about.
Increased need for later life lending
Following the credit crunch of 2007, the chances of getting a mortgage in later life became slimmer than ever before.
Just as the economic climate stabilised, yet another blow was dealt to would-be borrowers with the 2014 Mortgage Market Review, which brought about tougher lending rules and a much larger focus on affordability.
Coupled with a vast number of interest-only mortgages reaching their terms, over-55s needed an alternative lending solution and quickly.
Lifetime mortgages, or equity release, saw a steady rise in sales as older homeowners sought to resolve their financial issues without having to sell their home. Sales of plans reached new highs in the first quarter of 2016 when more money was released than in any other three months on record.
Signs are clearly pointing to the demand for retirement lending to increase further over the coming years. According to Age UK, the number of people aged 60 or over is expected to pass the 20 million mark by 2030.
In response to all of this, today’s banks, building societies and equity release providers are offering more innovative and flexible products for the over-55s than ever before.
Conventional later life mortgages
Mortgages for those in or approaching retirement became much more accessible over the last few months.
Halifax and Nationwide have this year increased their maximum age limit for mortgage borrowers from 75 to 85 years old. In March 2016 a new home loan was announced by another lender that means homeowners aged 55+ can have a mortgage until they are 95!
This standard interest-only mortgage is available for house purchases or remortgage deals, and can also be used to fund home improvements or to consolidate existing debts. You will still own 100% of the property.
There are also some small building societies that have no age cap at all for their mortgage products, and can assess each case on its own merits.
The main drawback with conventional mortgages is that you need to prove you have sufficient income to make the repayments. For those still in work or enjoying decent pension pay outs, this may not be so much of an issue.
For homeowners getting by a smaller pension income, or with a history of poor credit, it may be more difficult.
The flexibility of modern lifetime mortgages
Lifetime mortgages have evolved rapidly over the last few years.
Many of today’s ground-breaking plans offer low variable rates, interest-only deals and flexible payment options that are not too dissimilar to conventional mortgages.
Lifetime mortgages typically differ from conventional mortgages because:
- They enable you to access the equity in your home to spend in any way you choose
- The interest is rolled up and added to the loan, so no monthly payments are required
- There are no affordability checks
Innovative new plans mean homeowners can choose to make voluntary payments on the loan to prevent interest from accruing as quickly, or at all.
These payments can be on a regular or ad hoc basis depending on what you agree at the outset, and are usually limited to annual payments of up to 10% of the original amount borrowed. In some cases, it is possible to fully repay the loan plus interest in as little as ten years.
Of course, if you choose not to make any payments on the plan then the interest will accrue, and the loan plus interest will be repayable when the plan comes to an end, usually when you pass away or move into long-term care. It means an equity release plan will reduce the value of your estate and the amount of inheritance you leave.
Your retirement lending options
With drawbacks and benefits to all types of retirement lending options, if you are in or approaching retirement then it is vital to seek specialist guidance before making a decision.
Speak to us today. Bower’s independent retirement lending specialists can explain everything to you during your free, no-obligation initial consultation.
Remember, with our service there is never any pressure to proceed, and if you do decide to go ahead with an equity release plan or a later life conventional mortgage then our specialists can arrange everything on your behalf.