Size Of Opportunity
As a later life specialist, we wanted to address some of the most common myths surrounding later life borrowing. Whether it’s borrowers aged 55+ who may wrongly believe they need to sell their home or downsize when they come to the end of their mortgage term. Or asset rich home-owners who want to access funds without selling their home, let us help set the record straight.
Over the coming years, demand for mortgages that run into later life is expected to grow dramatically1. As it stands, there are around 1.7 million people in Britain on either a part or full interest only mortgage and around 200,000 of those are due to mature by 20202. This means those borrowers will need to repay the capital in full or seek an alternative form of borrowing.
The FCA has raised concerns that those on interest only mortgages – nearly one in five UK mortgage customers1 could have shortfalls in their repayment plans which could lead to them losing their homes. To help, it has relaxed the rules around how interest only mortgages are sold and advised on, calling on mortgage providers to give older borrowers greater choice.
At the same time, later life lending can be a means of helping asset rich but cash poor retirees access funds without selling up or moving. The Equity Release Council3 explains that the growing interest in equity release – which is attracting twice the number of customers as 5 years ago – is a sign that more homeowners consider their property as a potential source of finance in later life.
Our Business Development Director, Steve Cox reveals 7 common things older borrowers worry about when it comes to remortgaging later in life, revealing the truth behind common myths.
Steve said: “Many older borrowers might be unaware of the options now available to them and may be thinking they have to sell the home they love, either to release funds or to reduce borrowing. But this is not true.
“The recent FCA changes are a really positive step for older borrowers and will help those whose circumstances mean they require affordable borrowing post age 55 to access it. Equally, equity release offers those whose home is their largest asset, a means of accessing finance without the need to move. We’re now working and living longer than ever before, and with the right financial support there’s no reason retirees shouldn’t be able to remain in their current home long into older age.”
In response to the changes by the FCA, and recognising the needs of the later life borrower, we’ve launched the 55+ Retirement Interest Only (RIO) mortgage.
The RIO mortgage should be positively embraced by the mainstream intermediary marketplace. It’s a product that facilitates a holistic approach to mortgage lending as consumers transition into retirement. And it’s a potential solution in many cases to a problem we know is building. No longer will people need to feel that they are ‘too old to get a mortgage’ or that they have been pushed to sell their home as there is no other option.
The later life sector will continue to grow and we strongly believe that the intermediary market will be at the heart of providing great customer outcomes. With fast growing consumer awareness there will be demand for products, choice and flexibility and RIO Mortgages will bring another dimension to an already buoyant market sector.”
Read on to dispel the myths around later life lending.
It’s not. Broadly speaking older borrowers have two options available to them, equity release or a residential mortgage.
Residential mortgage: Providers like us offer mortgages specifically for older borrowers, like the Retirement Interest Only 55+ (RIO 55+) mortgage and the 55+ mortgage. Borrowers make interest payments every month and then repay the capital part of the loan, in the case of RIO when they die and the home is sold, or if they move into long term care or indeed choose to downsize.
Both the 55+ mortgage and the RIO 55+ mortgage take employment income (including self-employed), rental income, investment income and some benefits as well as post retirement income such as pensions into account. Both mortgages are open to applicants aged over 55. The 55+ mortgage is basically a ‘standard’ interest only mortgage that runs for a minimum of 5 years or until a maximum age of 95, giving borrowers an option for an ‘extended’ mortgage. The RIO 55+ doesn’t have a set end term at all, and can run until the borrower passes away, moves into long term care or chooses to sell their home.
Equity release: There are a variety of equity release products available on the market, from the more traditional options where interest is accumulated throughout the life of the product and repaid when the customer dies or sells the property to move into care, or hybrid products where borrowers can make monthly interest repayments for a period and switch to ‘rolling up’ the interest at a later date, like Hodge’s ‘Retirement Mortgage’.
We only sell our mortgages through financial advisers as we believe it’s the best starting place for older borrowers who might be unsure which form of lending best suits their needs. Our residential mortgages can be recommended by mortgage brokers and advisers whilst our equity release mortgages require advisers to hold an equity release qualification.
Not with all lenders. We will accept applicants up to the age of 85 for mortgages. Some products have fixed terms for repayment whilst others run until death or entry into long term care, for example the 55+ RIO.
Some products require interest only repayments for the whole term, whilst with equity release mortgages, the interest can be rolled up, meaning no repayments are ever required.
Not necessarily. Whilst some high street banks are unable to offer mortgage products to older borrowers or offer them over a long enough term for repayments to be affordable, some specialist lenders like us will consider retirement income alongside any other financial commitments. We also consider income pre-retirement as we appreciate there is no longer such as thing as a ‘typical’ retirement these days. So just because they’ve been turned down by a mortgage from a standard lender, it doesn’t mean customers won’t be able to get a mortgage later in life with a specialist lender.
Alternatively, standard equity release products are generally not affordability based, and may not include credit checking as standard (our standard Equity Release does not include a credit check).
False. Some later life specialists like us, will take pre-retirement income as well as existing or expected retirement income into account in the same way as they would employment income. Remember to check as some lenders will only look at income post retirement when assessing affordability.
Standard equity release products are not income dependent so having little/no retirement or employment income will likely not exclude customers from these product types.
Typical equity release pricing has fallen in the last couple of years and the products look and feel far more like high street mortgage products than ever before.
When it comes to later life mortgages, a range of product options including fixed rate deals are available – for example our 55+ mortgages offer a choice of 2 or 5-year fixed rates giving borrowers choice over products. In addition, products like the 55+ RIO don’t have an end term, giving flexibility, that standard mortgages don’t offer.
Early repayment charges vary across the market, but typically for both equity release and standard mortgages for older borrowers, ERC’s range between 5 and 10 years on average.
Staying in touch with your customers also means that if their circumstances do change the right product and outcome can be achieved as customers journey through later life. For example, if a RIO mortgage is taken but later the customer needs to move away from making regular monthly interest repayments, equity release may become appropriate depending on the customers age and LTV requirements at that point.
It depends on what product has been selected. Whilst standard residential interest only mortgages that run into retirement require full capital repayment at the end of the set term, others like the 55+ RIO don’t require full repayment until the borrower dies or moves into long term care or decides to downsize.
Equity release products are only repayable when the customer dies or goes into permanent long-term care.
Later life lending has been designed to avoid forcing borrowers out of their homes by offering a range of products and solutions.