Later life mortgage lending on the up
Growing numbers of homeowners and buyers aged 55 and over are taking out mortgages that will run into retirement.
There were 33,130 new loans advanced to borrowers over 55 between April and June this year, according to UK Finance’s latest Later Life Lending Update, up 0.49% year on year. Around £570 million pounds was lent to borrowers over 70, up 9.62%, while 1,180 residential loans were taken out by retirees, an increase of 1.72% year on year.
Many lenders have become more flexible about lending to people in or approaching retirement, providing they meet affordability checks. If you are considering taking out a mortgage later in life, you’ll therefore need to think carefully about how you’ll cover your monthly repayments.
Clare Stinton, head of workplace saving analysis at Hargreaves Lansdown, said: “Some will be choosing to work longer or part-time, others may plan to use the tax-free cash from their pension to chip away at the debt. Either way, it’s a financial burden that previous generations rarely carried into retirement.
“This trend looks set to continue, with house costs sky-high, younger buyers are getting onto the property ladder later in life and often with longer mortgage terms. Paying a mortgage into our 60s, or beyond, could soon become the new normal. It makes an even stronger case for paying into your pension as early as possible, the more you put in now, the more time compound growth has to do the heavy lifting for you.”
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Many older borrowers opt for lifetime mortgages, a type of equity release scheme, rather than standard mortgages, as these don’t require you to make monthly repayments. Instead, interest rolls up over time, and only has to be repaid, along with the capital borrowed, when you die or move into long-term care and the property is sold. According to UK Finance, there were 5,830 new lifetime mortgages advanced between April and September, up 3.7% year on year. The value of this lending was £520m, which was up 10.6% compared with the same quarter a year previously.
Retirement interest-only mortgages are another option for older homeowners. These allow you to pay the interest as you go along, so only the initial loan is repaid when you sell up or pass away.
If you’re considering either of these options, it’s essential to seek professional financial advice first, as these types of mortgages won’t be right for everyone. Unlocking some of your property wealth, for example, could affect your entitlement to benefits, and will also impact the amount you’re able to leave as an inheritance.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Lifetime mortgages can work for some people who can’t meet everyday living costs from their pension, while retirement interest-only mortgages can provide a one-off injection of cash for a specific reason – such as home improvements or healthcare.
“However, neither of them should be entered into without fully understanding the implications for you and your family.”