Equity Release is no longer the only solution available for older homeowners

David Forsdyke, Head of our Later Life Finance service, explains why and how the options available for homeowners over the age of 55 have changed.

Just 10 years ago the majority of mortgage lenders had a maximum age limit of 75, and the range of products that allowed you to borrow into retirement was extremely limited. Most older homeowners were forced to choose between selling and downsizing or using an Equity Release product to repay an existing mortgage so they could remain in their home.

Turn the clock forward to 2023 and we can see the market for borrowing into retirement has grown significantly. The need for mortgages in later life has been driven by a number of factors including:

• A decline in reported pension provisions and savings

• Homeowners taking out longer mortgage terms

• Improving life expectancy

• Greater desire to remain in our homes

• ‘The Bank of Mum and Dad’ is playing an increasingly important role in funding the first-time buyers’ market

The current borrowing options

The steadily growing ‘Later Life lending’ market offers those in or approaching retirement a huge range of products and options. Below are six of the most popular forms of borrowing for homeowners over the age of 55.

1. Retirement Interest Only Mortgages

Often called RIO mortgages, these work in a similar way to an ordinary Interest Only mortgage, but they have no fixed term. Instead, the loan runs until the borrower passes away or move home, perhaps to another property (where they may take a new RIO mortgage) or into care. The borrower pays interest each month, and the amount they can borrow will be determined by their income and an affordability assessment by the lender. As advisors, we have access to the lenders affordability criteria and can quickly tell you how much you can borrow and how much it will cost.

2. Regular Mortgages

Gone are the days when all mortgage lenders would draw the line at a certain age. An increasing number of lenders are reviewing and extending their criteria, and some now allow borrowers to take their loan to age 85 or beyond, and others have removed their age limits completely. As long as you can afford to meet the regular payments, lenders will lend.

3. Hybrid mortgage products

The term ‘Hybrid’ is often used to describe mortgage products that look like a regular mortgage, but then allow you to transition into a RIO or Lifetime Mortgage at a later date.

4. Bridging Loans and second charges

Although not restricted to the Later Life Finance market, access to short-term borrowing can be a huge advantage for older borrowers. For example, if you are downsizing but want or need to move into your new home before your current one is sold, a bridging loan with retained interest (so there are no monthly payments) can be a useful tool in giving you time to sort out your current home. You might want to simply avoid the stress of a simultaneous sale and purchase, especially if you are experiencing declining health.

5. A Lifetime Mortgage – Lump Sum

Unlike a normal mortgage, a lifetime mortgage has no fixed term and offers greater flexibility. The loan runs until the borrower passes away or move home. At that point the property is either sold and the mortgage repaid, or if moving house it can be moved, or ‘ported’ to your new property. Interest is charged in the same way as any other mortgage, but with a Lifetime Mortgage the borrower can choose to let it roll up on top of the loan, pay some or all of it each month, or make ad hoc repayments. The amount you can borrow is based on your age and the value of your property.

6. A Lifetime Mortgage – Flexible Drawdown

Sometimes this is known as a reserve facility. This is an amount pre-agreed when the lifetime mortgage is first taken out and allows you to withdraw (draw down) these funds when you want them. This can be on a regular or ad hoc basis, and the advantage is that you won’t pay any interest until you have drawn the money. This is ideal if you need to top up your income regularly, or don’t need funds immediately but can see a need coming in the future. It gives you complete control over how much and how often you withdraw.

If you would like to talk to David about any of the Later Life Finance products described above, or if you have a particular need and are struggling to find a solution, please get in touch by emailing david.forsdyke@knightfrankfinance.com or call David directly on 01483 947 764.