With the recent FSA review of interest only mortgages in 2010, there are many people that have been unduly affected by the changes, some more serious than others – the pensioner mortgage.
We have experienced an unprecedented period in mortgage lending; the resulting outcomes of which are a mixed bag.
Over the longer term, the first time buyers who can get on the mortgage ladder will be protected more, however at the other end of the spectrum there are many retired persons who having taken out mortgages believing they were for life, are now facing harsh reality.
Lenders closing loopholes in interest only mortgage refinance, have forced out of their slumber a proportion of mortgagors who either had not planned correctly or whose plans have been left awry by changes in personal matters they experienced.
These mortgage lending criteria changes can now lead to many people happily mortgaging through retirement having to possibly sell their home to redeem the mortgage or look at alternative lending proposals.
Many high street lenders insist now on mortgages being repaid by age 75, but why? Retirement income is usually more secure than employment income as it’s fixed & indexed usually for life. Pensioners cannot be made unemployed & if necessary can always seek additional part time work to secure additional income. So why does a pensioner mortgage seem to be persecuted by a mortgage lender when if affordability can be shown. Surely this is a more stable customer than many younger counterparts. We seek to address this later with further retirement information provided.
The problem for many is the question ‘can I still get a mortgage in retirement?’ The answer is yes, but subject to either income in retirement, property value & age.
The preliminary question to be asking yourself is do I wish to stay in my property? The answers will be different for a multitude of reasons. But if downsizing achieves the goal of repaying the mortgage & still providing a residence to support the retirement road ahead then this would make sense.
However, given the emotional ties usually associated with one’s marital home this is not always the most feasible option. The other considerations should be whether any savings could be used or ask friends or family to help out financially.
Failing these options would then lead us to the alternative financial instruments still available such as lifetime mortgage deals.
The best lifetime mortgage is one that meets your needs now & in the future. The options are limited but if circumstances permit then the result could leave you with a stress free retirement.
We initially need to look at the facts – property value, size of the mortgage, credit & credit history & age of the youngest applicant.
Another question to ask is what repayment basis you would prefer & this would depend on how much of an inheritance you wish to leave behind.
If you have a cautious attitude to risk & wish to ensure that maximum is left to your beneficiaries then a capital & repayment option can exist to age 85 with someone such as Leeds Building Society. This is obviously subject to income criteria which your financial adviser can explain.
Meanwhile, if you want to be in control of the mortgage balance & know exactly how much will need repaying on death, then interest only lifetime mortgage options also exist with the Halifax Retirement Home Plan & Stonehaven’s Interest Select.
These interest only mortgages for pensioners will keep the balance at the same level for the rest of your life, with just interest only monthly mortgage payments being required for the duration.
If how much you leave to your heirs is not a concern, then equity release maybe the final consideration. Equity release schemes will allow you to raise tax free cash against your property with no monthly mortgage payments. The caution to be heeded here however is that the interest charged is added to the mortgage balance over the years, effectively doubling the balance every 10-11 years. This will reduce the size of your final estate, however if this is not a major concern then it can for many be a viable option.