John & Anne Wetherby, both age 55 and from York were concerned that their interest only mortgage with a well known mainstream lender was coming to an end.
They’d previously planned to sell up and downsize when the time came to repay, but the time was fast approaching, with just a year to go and they just weren’t ready, so they decided to look for an alternative.
Initially they believed equity release might be their only option. They did a bit of research but were concerned the loan amounts available wouldn’t work for them based on their younger age and their property value of £170,000 with a £100,000 mortgage needed. They decided to get in touch with their mortgage broker to see if there was anything she could do to help.
Through their broker, they learned of a new type of later life mortgage, the Retirement Interest Only (RIO) Mortgage. Not equity release, but in the case of Hodge Lifetime’s mortgage, with no end date.
The 55+ RIO Mortgage, an interest only residential mortgage for borrowers aged 55-85 based on affordability, offered them the option of continuing to live at their home, potentially for the rest of their lives with the capital being repaid on death or when the last surviving borrower entered into permanent long term care.
With options of 2 or 5 year fixed interest rates from 3.59% and with early repayment charges that lasted only 2 or 5 years, they discovered they could also have the flexibility of simply deferring the sale of their house for a few years if they chose to without incurring heavy penalties should they choose to sell up and repay in the future.
Their broker Sarah, went through details of the RIO, pointing out that equity release could also be considered. Not having the qualifications to advise on equity release Sarah introduced John and Anne to a specialist adviser with whom she had developed a strong business relationship.
Pleased they had met with an equity release adviser, the Wetherby’s felt they had a much greater understanding of the options available. Whilst they decided to opt for the 55+ RIO, arranged through their original broker, they kept the details of the equity release adviser as they felt that it might be a viable option for them a few years down the line.
Why the 55+ RIO Mortgage?
One of the main reasons was because it’s based on affordability, as well as on age and property value.
At 55 they were both eligible for the mortgage and with a maximum loan to value of 60% of their home’s value and no minimum equity requirement, this was of great appeal. They could potentially borrow the £100,000 they needed and as Hodge look at income both pre and post retirement, with the product being interest only they felt they could afford the repayments.
Why did this case work?
John Wetherby, a Store Manager for a large supermarket with a planned retirement age of 70 (possibly later if he can) earns £60,000 a year. Anne Wetherby is a self-employed hair dresser with a planned retirement age of 65 and earning of £10,000 a year.
At Hodge we can work with both of these scenario’s as we assess affordability based on income both pre and post retirement and accept that people may want to work on into later life. We also accept income from people who are self-employed.
The Wetherby’s outgoings were £600 per month on basic essentials such as council tax, utilities, food, travel for work, £400 on socialising, clothes, TV, internet etc and £250 discretionary expenditure for holidays etc. This equated to 15,000 in total per year.
They had a good credit score, always maintaining their mortgage and credit repayments on time, and they approached their broker before their mortgage term with their current provider had ended.
What does their retirement look like?
John has a drawdown pension worth £300,000, Anne, a personal pension worth £100,000, they both had an entitlement to full state pension. This allowed them to pass affordability checks post retirement as well as pre, something that is essential for the 55+ RIO.
The couple had added peace of mind with Hodge that if their pensions did not work for affordability, there was an alternative product, the 55+ Mortgage, similar but with a term from 5 years to age 95 that could work. In this case, as Hodge accept drawdown pensions, unlike some other providers, the case was assessed and accepted for the 55+ RIO.
What came next?
After submitting a decision in principle application containing all of the above details, the next day the couple’s broker was able to give them the good news, subject to evidencing the figures, they had been accepted for the £100,000 mortgage they wanted.
Their broker went on to help them complete a full application, that they e-mailed to Hodge along with evidence of income and pensions, 2 months’ payslips and a P60 for John’s income and an accountants certificate for Anne, along with their last two months bank statements and projected pension statements from their providers.
Over the coming weeks their home was valued at £170,000, a free valuation organised by Hodge. All legal work was undertaken with no cost to the Wetherby’s as they took advantage of Hodge’s offer of free legal advice for standard re-mortgaging.
The loan amount of £100,000 was approved and used to pay off their existing mortgage in full, at a cost of just under £300 a month for the first two years as the Wetherby’s chose the 2 year fixed rate of 3.59%. After the two years, they were happy that they would revert onto Hodges standard variable rate with the option to re-fix, or as their repayment charge period was over, they could re-assess their options. They were also pleased to learn they could overpay by 10% in years 1 and 2 without penalty should they choose to.
They’d expected their application to take a little longer than the norm as from the off their broker had explained that things might take longer based on when evidence of income became available. In fact the whole process took only 9 weeks from start to finish. The Wetherby’s came to the end of the process happy and content that they had found a solution that worked for them now, but that was flexible enough to allow them to find different solutions in the future should they wish to.