Monday, December 10, 2018


A new breed of mortgages designed to help older borrowers stay in their homes is on the rise.

In March, banks and building societies were given the green light by the City watchdog to offer loans to people of any age, with no end date.

Since then, 13 lenders, including Nationwide, have launched new deals known as retirement interest-only mortgages, according to analysts Knowledge Bank.

Banks and building societies can now offer loans to people of any age, with no end date

Banks and building societies can now offer loans to people of any age, with no end date

The idea is that borrowers can make the monthly interest payments, but do not have to pay towards reducing the balance of the mortgage.

The loan is instead repaid when the house is sold — either after the homeowner dies or moves into long‑term care.

Previously, older borrowers faced very limited choice when it came to remortgaging.

The majority of companies stopped lending to customers over the age of 70 after the City watchdog introduced strict new rules in the wake of the financial crisis. 

For many people in their 50s and 60s who had not yet cleared their mortgage, it meant that their only option was to sell their home.

Today, an estimated 1.7 million people have an interest-only mortgage, a type of loan popular in the Nineties and Noughties as a cheaper way of borrowing. 

Large numbers are predicted to reach the end of their loan term and face demands for cash that they haven’t got. 

Around 174,000 are expected to still owe more than 75 per cent of the value of their property when their loan expires.

Mortgages that allow these homeowners to continue borrowing into retirement could be a lifeline.

At first, it was just one or two small building societies at the forefront of this new type of deal. But now borrowers have more than a dozen lenders from which to choose.

Nationwide — Britain’s biggest building society — is trialling its own version for a small number of existing borrowers. 

Around 174,000 are expected to still owe more than 75 per cent of the value of their property when their loan expires.

Around 174,000 are expected to still owe more than 75 per cent of the value of their property when their loan expires.

Around 174,000 are expected to still owe more than 75 per cent of the value of their property when their loan expires.

The plan is to roll out the new deal more widely by March next year. To date, Leeds Building Society is the most well-known lender to offer retirement interest-only mortgages.

Most of these mortgages are open to anyone aged over 55. But some, including Bath Building Society, have a minimum age of 65.

David Hollingworth, of mortgage broker L&C, says rates are competitive and he expects the choice of products to grow.

‘The retirement interest-only mortgage market is still in its infancy,’ he adds. ‘But as more lenders come on board, particularly big names like Nationwide, older borrowers who had been squeezed out of the mortgage market after the financial crisis will have a much better choice of mortgage options.’

The cheapest retirement interest-only deal available in England and Wales is a two-year variable rate from Penrith Building Society.

The rate is currently 2.59 per cent, which is a 2.16 per cent discount off the building society’s standard variable rate of 4.75 per cent.

For borrowers aged 55 or over with a 50 per cent deposit, the monthly interest repayments on a £150,000 mortgage work out at £324.

Over two years, the total cost — including fees of £699 — would be £8,475.

In Scotland, borrowers aged 60 and over who have a 50 per cent deposit can get a 2.29 per cent three-year rate with Scottish Building Society.

The cheapest retirement interest-only deal available in England and Wales is a two-year variable rate from Penrith Building Society. The rate is currently 2.59 per cent

The cheapest retirement interest-only deal available in England and Wales is a two-year variable rate from Penrith Building Society. The rate is currently 2.59 per cent

The cheapest retirement interest-only deal available in England and Wales is a two-year variable rate from Penrith Building Society. The rate is currently 2.59 per cent

This is a 3 per cent discount on the lender’s standard variable rate of 5.29 per cent.

On a typical £150,000 loan, monthly repayments would be £286. The total cost over three years, including a £799 fee, would be £11,095.

Leeds Building Society offers the lowest UK-wide fixed rate for borrowers aged 55 or over who have a 45 per cent deposit. 

At 3.34 per cent, fixed for two years, the monthly interest repayments on £150,000 work out at £418. The total two-year cost, including a £999 fee, would be £11,031.

A well-established alternative mortgage for older borrowers is equity release, also known as lifetime mortgages.

As with retirement interest-only mortgages, there is no end date to these loans and plans are open to the over-55s.

With equity release, however, interest payments are rolled up each month and added to the loan. The debt is then deducted from the proceeds of the house when it is sold.

With a retirement interest-only mortgage, homeowners can protect the equity in their property, which they may want to cover care costs or pass on as an inheritance.

The drawback is that many providers look at the worst case scenario when making a decision about whether you can afford the loan.

This means lenders providing a mortgage to a couple will make sure each applicant can afford the monthly interest payments on their own in the event that one of them dies.

In many cases, lenders will only take into account pension income, even if the applicants are still working.

Many building societies offer retirement interest-only mortgages only through brokers to ensure borrowers receive specialist advice.

Richard Merrett, managing director of advice firm Largemortgage loans.com, says: ‘The market for retirement interest-only mortgages is bigger than you think.

‘It is not only the lenders who have official product ranges that can help, there are quite a few banks and building societies that are happy to lend to credit-worthy older borrowers. 

‘And many High Street lenders have extended their maximum age limits to beyond 80.’

s.partington@dailymail.co.uk

 



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