Later life lending up by 33%
The number of mortgages taken out by borrowers aged 55 and over jumped by a third in the first three months of the year, according to UK Finance, with more than 38,5100 loans advanced.
Lenders have become increasingly flexible when it comes to lending into later life, and older homeowners often need to borrow into their 60s and beyond to help them manage steep living costs. Recent research carried out by Fairer Finance found that half of UK homeowners will need to tap housing wealth to pay for retirement, and that unlocking property wealth could boost the UK economy by £21 billion each year by 2040.
Jim Boyd, chief executive of the Equity Release Council, the trade body for the equity release sector, said: “The UK Finance figures highlights that 7.6% of residential loans taken out in the first three months of the year were by borrowers who were over-55. The market is moving swiftly from niche to mainstream with increasing numbers of older customers relying on advisers to help them navigate their various options which include equity release, retirement interest-only mortgages and later life mortgages.”
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There were 5,620 new lifetime mortgages, a type of equity release scheme, advanced in the first three months of this year, up 11.1% year on year. The value of this lending was £530mn, which was up 39.5% compared with the same period last year. Lifetime mortgages involve homeowners borrowing a lump sum for the remainder of their lifetime. This sum, plus interest which rolls up over time, must only be repaid either when you die or move into long-term care and your property is sold.
It’s essential to seek professional financial advice first as unlocking some of property wealth could affect your entitlement to means-tested benefits. It will also reduce the value of any inheritance you might have been planning to leave. However, there are now plenty of plans available which allow you to protect a portion of your equity for use in the future as an inheritance for loved ones.
Homeowners who are worried about interest charges mounting up if they release equity from their properties, and who can afford to make monthly repayments, may alternatively want to consider a retirement interest-only mortgage.
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As the name suggests, this type of mortgage in works in a similar way to a standard interest-only mortgage, whereby you repay only the interest owed each month and none of the capital, but is only available to homeowners aged 55 or above. Unlike a standard interest-only mortgage, however, a RIO mortgage has no set term and only needs to be paid back when the property is sold, either when the owner dies or moves into long-term care.
This kind of mortgage remains less popular than equity release, with only 339 RIO mortgages advanced in the first three months of this year, according to UK Finance, although this was up 19.4% year on year. The value of this lending was £33mn, 17.9% higher than the same period last year.