Are mortgages for older borrowers really a silver bullet?

23rd August 2019

Older couple looking at mobile phone

Mortgages are often seen as something you pay during your working life until you finally achieve the dream of owning your home outright.

However, more and more lenders are targeting people approaching retirement or who’ve already hung up their briefcase. The number of mortgages allowed to end when borrowers are aged between 80 and 84 increased from none in 2014 to more than 1,000 in January 2019. (1)

In April 2019, Nationwide became the first of the big high street lenders to offer a package of mortgage options and advice for over-55s. (2)

And still, products keep coming.

In July 2019, the Cambridge Building Society launched their own retirement interest-only mortgage for borrowers who are retired and aged 55 or over. (3)

Why are more people borrowing in later life?

The way that older people are living has changed. For a start, retirement age is creeping up. According to the Financial Conduct Authority, the UK’s financial regulator, the number of borrowers who will be aged 66 and over when their mortgages mature is on the rise. (4)

A retirement interest-only mortgage also offers flexibility, whether you want to do things that were off the cards while working, you’ve run into financial difficulties or you want to help your children. You only pay off the interest which limits your monthly repayments and frees up money to use elsewhere.

What types of mortgages are there for older borrowers?

As an older borrower, you now have three options when it comes to getting a mortgage, depending on your circumstances.

If you’ve got a high retirement income, you could still get a traditional mortgage. Many lenders have increased their upper age limit.

A retirement interest-only (RIO) mortgage might be for you if a traditional mortgage is off the table. You can borrow against your property and only pay back the interest, rather than the loan sum itself. The loan is only repaid when you sell your home, move into residential care or pass away.

Then there’s an equity release mortgage. Here you borrow against your property and can choose not to make any repayments. The loan is paid off when the property is sold, you move into care, or pass away.

Are mortgages for older people a good idea?

It all depends on your circumstances.

“Equity release and RIO mortgages enable you to access a lump sum of money with which you can enjoy your retirement more or pass on to family to help them get on to the property ladder,” said Ahmed Choudhry, a Trussle Mortgage Adviser.

“Bear in mind, however, that most mortgages for older borrowers come with a higher fixed-interest rate, many of which track the Bank of England bank rate.

“And with equity release, there’ll be less money from your home to pass on to your family.”

There’s quite a lot to consider, so it’s best to speak to a mortgage adviser to guide you through your options.

Sources:

1 - Moneyfacts

2 - Nationwide

3 - Cambridge Building Society

4 - Financial Conduct Authority

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