Have you wondered whether you can remortgage your home later in life? Perhaps you would like to release equity as you approach retirement? As you grow older, it becomes increasingly tricky to find a mortgage solution that suits your lifestyle – and meets lender criteria.
What is known as ‘later life lending’ has continued to grow in popularity amongst UK homeowners as increasing numbers of borrowers seek long-term solutions.
We explore everything you need to know about later life mortgages, with expert Andy Shaw, Head of Later Life Lending at our in-house mortgage broker SPF.
What is later life lending?
You may be looking forward to retiring, but you may already know that there is likely to be a shortfall to overcome, whether it’s not having enough savings to supplement a pension, or you will come to the end of an interest-only deal but don’t have the lump sum to pay off the capital.
Enter the ‘later life mortgage’ market – designed to free up your finances while you remain in your home.
In 2022, the ‘lifetime mortgage market’ represented £6.2 Billion of lending – and this figure is expected to continue rising as we, an aging population, seek to release equity that is ‘locked-up’ in our home. But what exactly are the options, and who is eligible?
Later life lending options
“The most common form of later life lending is what is known as a lifetime mortgage”, confirms Andy. “Lifetime mortgages are available to borrowers over the age of 55 and provide a sum of money secured against the borrower’s home, much like a conventional mortgage.
“Where this differs from a conventional mortgage is that the interest rates are usually fixed for life. Lifetime mortgage loan sizes and interest rates are based on the borrower’s age and the value of their property, and, unlike a regular mortgage, they are not assessed against income or affordability.”
“Borrowers can either pay some or all of the interest or choose to make no payments and add the interest to the loan. The loan and any interest are repaid when the borrower (or last borrower for joint applications) dies or moves into care.”
Lifetime mortgage loan purposes
You may be considering releasing the equity in your home, but are there any restrictions on what you can use the money for?
A lifetime mortgage can be used for most purposes. The most common uses of the funds raised include:
- Supporting the purchase of a new main residence
- Repaying an existing mortgage or other debts
- Making home improvements
- Gifting to family
- Capital expenditure, such as holidays, a new car, a second/holiday home etc.
- Topping-up retirement income
- Funding long-term care
- Inheritance Tax/estate planning
Lifetime mortgage flexible features
Future flexibility is often key when establishing the most appropriate lifetime mortgage lender and product. The following options may be important depending on your personal circumstances:
- Lump sum or drawdown – all funds taken up front or an initial advance with a pre-agreed facility for future use
- Optional interest payments – regular or ad hoc – which can be stopped, started or adjusted at any time
- Transparent Early Repayment Charges (usually applicable for 8 – 15 years)
- Portability – meaning your mortgage can potentially be transferred to your new property upon moving home
- Downsizing protection – exemptions from Early Repayment Charges if moving to a property that is not acceptable to the lender (i.e. when the mortgage cannot be ported).
- Exemptions from Early Repayment Charges on first death or first move into residential care (joint borrowers)
- Enhanced terms for medically impaired borrowers
What other later life mortgage options are there?
It is essential to talk to a mortgage broker when it comes to reviewing all of the options available to you, which may include:
Home reversion plans
Homeowners aged 65 and over could access a home reversion plan. A ‘home reversion’ company will buy a percentage of your home for below full market value and this allows the homeowner to live in the home rent free, until they move into care or die.
The home is then sold and the reversion company gets its share (or all) of the proceeds. You can use home reversion to pay off an existing mortgage but you won’t be able to leave your home to a loved one when you die.
Retirement interest-only mortgages
In the past, lenders have been cautious about lending into retirement. However, things have changed! Retirement interest-only mortgages allow the homeowner to borrow a lump sum secured against their home, pay monthly interest on the loan and repay the debt when the home is sold.
If you are hoping to leave your home to a loved one, retirement interest-only mortgages may be more suitable than lifetime type mortgages. These mortgages are assessed against retirement income and in the case of joint applications, on a ‘sole survivor’ basis.
Mainstream residential mortgages
Did you know that an increasing number of lenders are willing to offer conventional mortgage terms to older borrowers? SPF’s expert advisers are able to investigate these options on the borrower’s behalf.
Speak to a mortgage broker
“The options now available could provide relief to many homeowners as they grow older,” concludes Andy.
“In recent years, the evolution of the later life lending marketplace has seen new lenders enter this arena, as well as significant product innovations, which in turn provide greater flexibilities to accommodate borrowers’ future requirements alongside their immediate needs.
“However, it’s important to understand that the route you choose to take could have tax implications or impact on any inheritance to wish to leave to your loved ones, so seeking expert advice is essential, When considering your options, it makes sense to speak to a mortgage broker such as SPF, with expertise in Lifetime Mortgages and Retirement Interest Only Mortgages from the full range available to intermediaries. It’s our job to assess your circumstances and advise on the most suitable option.”
Contact SPF’s Later Life Lending team if you would like to know more.
Whether you choose to remortgage and remain in your home, downsize or rent, don’t forget to get in touch with your local A-Plan branch to confirm your change of circumstances.