We are living longer than our parents and grandparents generations.
As a result, the old certainties – a family in your early 20s, buying a home and paying it off over 25 years, retiring at 65 – don’t look quite so certain.
Living longer means some people are having families later and working until we are older. And we are taking many years longer to buy our homes.
There are several reasons for this. With the high price of property, it takes much longer to build up the deposit to get onto the housing ladder in the first place, and longer to pay off our mortgages when we do.
Being mortgage free in your 60s and even after you have retired is no longer certain either.
If you have not paid off your mortgage by the time you retire, it may not be a disaster. There are a variety of solutions available.
The Office for National Statistics predicts that, by 2030, more than a quarter of people in the UK will be aged 60 or over. A growing proportion of the population may still be looking at mortgage options when they are in their 60s.
Can I get a mortgage once I pass 60?
Traditionally, lenders would expect borrowers to pay off their mortgage well before they approached retirement age. There are of course sound reasons for this. The risk of a borrower dying and leaving a mortgage not paid off increases with every passing year, and repaying a hefty mortgage from a restricted pension income could be impossible back in the days of compulsory retirement at the age of 65.
But the world has moved on.
Today it is possible to get a mortgage at 60 or older. Possible, that is, but not always easy. Although there is no legal maximum age, many lenders do choose to impose limits and the more traditional lenders still tend to be the age of 65 for new borrowing.
Other lenders may be more flexible, but your options may be more limited than those enjoyed by younger borrowers. For almost all mortgages you will have to pass affordability checks and prove that you can pay off the mortgage by the end of its term. It can be harder to pass these checks in retirement because your income is likely to be reduced.
However, modern borrowers are not tied to a timetable for life drawn up by their grandparents. There are mortgage solutions available for older borrowers.
What mortgage can you have?
There are actually several type of mortgages and financial plans suitable for over-60s.
A Standard mortgage: With a standard or traditional mortgage, you make payments each month on a capital repayment or interest-only basis. This can be a suitable option for those still in employment or with a guaranteed retirement income.
Some lenders may have specific products aimed at people over the age of 60, but in many cases it is simply a matter of getting a standard mortgage and meeting the affordability criteria. Each lender will have own rules and particularly maximum ages. Expect the lender to be keen for you to pay off more quickly than a younger borrower. Terms may be shorter and monthly repayments higher.
A RIO: A Retirement Interest-Only Mortgage or RIO is open to home owners with a minimum age of 50. It allows you to borrow a tax-free cash lump sum, and to pay off only the interest each month. Because monthly payments are required, you will need to pass affordability checks to determine if you can get one. The amount borrowed is paid back only when the last surviving homeowner passes away or enters long-term care, and the property can be sold.
Home reversion: A home reversion plan involves selling some or all of your home to a provider in exchange for a tax-free cash lump sum. You will have the right to remain there, rent-free, until you pass away or enter long-term care. When your home is sold, the provider will take the percentage agreed from the value of the sale.
Lifetime mortgage: A lifetime mortgage is a type of equity release that involves taking a tax-free cash lump sum from the value of your home. Lifetime mortgages are the UK’s most popular equity release product as, unlike a home reversion plan, they let you retain full ownership of your home.
A lifetime mortgage can come with a fixed interest rate and interest builds up on the loan on a compound basis. The loan is repaid when the last surviving homeowner dies, or enters into long-term care or sells the property. There is no requirement to make regular repayments, it is possible to opt for a version of this type of mortgage where you could make voluntary payments to reduce the cost of borrowing over time.
What should you do?
The financial arrangement that is right for you will depend on many factors. The value of your home, the income you enjoy now, and what you can expect in the future.
You need to remember that taking money out of your property now will reduce the value of your estate and could affect your entitlement to means-tested benefits.
Getting expert advice – and making part of your overall financial plan for your later years is essential.
To get it, simply call us at Continuum.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.
Home Reversion Schemes and Lifetime mortgages are complex products to understand the risks and features ask for a personalised illustration.
A lifetime mortgage is a loan secured on your property.
Your home may be repossessed if you do not keep up repayments on your mortgage.