More and more people are borrowing into later life. Research from equity release lender More 2 Life has found that the total debt among the over-65s will pass £100 billion by 2023. Figures have also revealed that almost one in ten homeowners aged 65 to 74, and 4% of over-75s, are still repaying a mortgage.
If you’re looking to buy a retirement home but you don’t have the savings needed to complete the purchase, how can you borrow the additional money you need? Keep reading for our guide to your mortgage options if you’re buying a retirement home.
More lenders offering traditional mortgages to older borrowers
After the global financial crisis of 2008, it became increasingly hard for older borrowers to secure a traditional mortgage. Many lenders imposed maximum age limits for mortgages making it tough for anyone over the age of 55 or 60 to get a long-term mortgage.
Recently, however, lenders have begun to relax their criteria. In the last couple of years banks and building societies such as Halifax and Nationwide have increased their maximum age limits with other lenders following suit.
There are some smaller lenders who are open to agreeing a traditional mortgage for older borrowers. For example, the Family Building Society, Bath Building Society and Metro Bank offer mortgages without any specific upper age limit and will look at cases on an individual basis.
You will need to prove that the income from your pension(s) is enough to cover the repayments on the mortgage. It is usually easier to do this if you are already retired because you can show how much you get each month.
If you have not yet retired, a lender is likely to require confirmation of your future pension income. You will need to ask your pension provider to give confirmation of your:
- Expected retirement date
- Current pension value
- Expected lump sum and retirement income
Taking out a traditional mortgage means you’ll have to pay a monthly repayment over a fixed term. You’ll have a choice of fixed and tracker rate products, and your mortgage term will typically have to finish before the lender’s maximum age.
Retirement mortgages
If you’re looking to borrow to buy a retirement property, then you can also consider specialist retirement mortgages.
Unlike a traditional mortgage which has a fixed loan term, retirement mortgages let you choose whether to pay the capital, or simply pay interest and pay the capital when you move or pass away.
You will normally have to make a monthly interest payment on a retirement mortgage, but some offer the option to stop paying interest monthly once you pass a certain age. At this time the interest will instead be added to the total capital to repay. This can help reduce your monthly outgoings as you get older.
In 2018, the Post Office launched an innovative Retirement Link product to help older borrowers. Under the scheme, you can choose to pay off the capital of your loan or pay only the interest.
If you choose the repayment mortgage you can borrow up to the age of 90, while if you pick an interest-only product you can borrow up to the age of 80. You must be in receipt of pension income and you must take legal advice.
If you want to take out a joint mortgage, the Post Office will make sure the loan remains affordable in the event of the death of one party.
Commenting on the scheme, mortgage expert Andrew Montlake said: “It is good to see a mainstream lender and a trusted brand providing exactly the type of product that is needed for those older borrowers who are able to continue servicing a mortgage…
“Extending the age limits to 90 on a repayment basis and 80 on an interest-only basis gives borrowers in this sector a real option to a potentially more expensive equity release loan that will eat into their equity.”
Lifetime mortgage
An alternative to a traditional mortgage is a ‘lifetime mortgage’. Under a lifetime mortgage, you can borrow a lump sum against the value of your retirement property, but you don’t have to make any monthly repayments.
There is normally a minimum age to take out a lifetime mortgage (around 55 or 60), and you don’t pay any interest or capital each month. Instead, the monthly interest payments are added to the money that you borrow. You repay the capital on the sale of your property, or when you die or move into long-term care.
This option sounds attractive as it allows you to borrow to buy a retirement property without having to commit to a monthly payment. However, there are drawbacks. The amount you can borrow will be restricted by your age, and so the younger you are, the lower the loan-to-value you can typically borrow.
In addition, adding the interest to the loan balance every month means that the equity in your home reduces month on month. As the loan gets bigger and bigger it eats into your equity, and this means that you may not be able to leave very much to your beneficiaries on the same of your property.
Looking for a retirement mortgage?
If you’re looking to get a mortgage beyond your retirement, speak to a mortgage broker.
An independent adviser will be able to help you to find a lender who will let you take out a mortgage that will not be paid off until after you retire, or even agree a mortgage if you’ve retired already.
They will also be able to talk through your options with you and recommend the most suitable mortgage product for your needs.
Useful links
Retirement properties for sale
Best places to retire in the UK
Pioneering features for retirement living