The range of mortgage products available for older borrowers has undergone a revolution in recent years, with the introduction of several new ‘later life’ mortgage products specifically aimed at customers over the age of 50.
So what’s caused this sudden boom in later life mortgage products, and what does this mean for those hoping to secure a mortgage after a certain age?
Reasons for holding a mortgage after 50
New research conducted by Ipswich Building Society has revealed that over a third of homeowners and prospective homeowners (37%) expect to still hold a mortgage after 50 due to reasons other than not having reached the end of their term.
The top reasons include:
To cover living expenses: It’s a sorry thought, but many people believe they will need to hold a mortgage simply to cover living expenses in their twilight years. It’s important to bear in mind that those looking to borrow on this basis will be limited in their choice of providers willing to lend.
To free up holiday funds: Whether it’s investing in a timeshare, buying a campervan, or planning a trip around the globe – many see retirement as the perfect time to put the dream travel plans in motion that might have been impossible whilst juggling work and family commitments.
To invest in a new property: Remortgaging can free up the cash flow needed to downsize to a more manageable property, or to make the move from the city buzz to a countryside retreat better suited to a more relaxed lifestyle.
To extend or make changes to current home: Perhaps it’s to add further value, or to improve accessibility, but lots of people choose to extend or make adjustments to ‘future proof’ their current home. Remortgaging could pay for a new downstairs bathroom for example.
To elicit changes in employment status/career: Retirement could be the perfect time to turn a hobby into a source of income, or to explore a new career path driven by a passion or interest rather than necessity.
To give inheritance to children/grandchildren: Despite recent changes in the Autumn Budget 2018 to assist first-time buyers, research shows that couples buying for the first time in the UK would need to save for nearly five years to afford a 15% deposit. Therefore remortgaging to release capital from your own property could be a convenient way of helping younger relatives get onto the property ladder sooner.
To cover the expense of looking after parents in old age: With an aging population, it’s not unusual for those who have reached retirement to still have living parents, many of whom may require specialist treatments or residential care. Some are preparing to fund the care that their elderly parents require with a mortgage later in life.
Mortgages in later life: the changing perception
In the past, achieving ‘mortgage freedom’ was a life goal for most homeowners, however, there has been a growth in the number of people actively taking out a mortgage product later on in life and into retirement. Naturally, the mortgage market has reacted to demand, enhancing the variety of later life products and introducing product ranges specifically aimed at older borrowers, for example, the new Retirement Interest Only (RIO) mortgage category.
What is a RIO mortgage?
Retirement Interest Only (RIO) mortgages are available to older applicants who wish to release some of the equity tied up in their property, and who have the affordability to make monthly interest payments on the loan.
Requirements may vary between providers, but generally speaking, applicants must meet the following criteria:
– Over 55 years old (some providers have high entry ages)
– Have a sufficient monthly income (ie from pensions or property lets) in order to make the monthly interest repayments
Historically, the range of mortgage options for those over 50 has always been minimal, however, lenders are becoming increasingly aware that older borrowers are a diverse group who are often asset rich but cash poor, and therefore may wish to release funds locked within their property to improve their lifestyle in retirement.
Isn’t this the same as equity release?
In spring 2018, the Financial Conduct Authority (FCA) changed the categorisation of retirement-interest only (RIO) mortgages. Where previously RIO mortgages have always sat with ‘equity release’ products, they have now been reclassified as standard mortgage options.
Equity release products can only be sold by specially qualified professionals. Until such changes in legislation, this rule also applied to RIO mortgages, however RIO products can now be sold by regular mortgage brokers and lenders, making them far more accessible.
Building societies were certainly the main drive behind the rise in RIO mortgage products, however, it could soon be set to be a regular offering amongst larger high street lenders too.
In April this year, Nationwide became the first high street lender to expand its later life mortgage offering to include RIO, repayment, and equity release products, so it may only be a matter of time before other larger banks follow suit.
While the sudden influx of available mortgage products on the market may leave older borrowers feeling spoilt for choice, it’s important to consider your options carefully before making any permanent arrangements. Richard Norrington, CEO at Ipswich Building Society warns:
“With these changes comes the challenge of ensuring that later life borrowers are selecting the most suitable mortgage product for their individual circumstances. Standard residential mortgages, RIO, and equity release products all have their various merits and restrictions, so it’s important to seek professional advice before committing to any type of loan secured against your property.”