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Retirement interest-only mortgages explained

Find out how to get a mortgage when you're retired, and how these new types of mortgage work.

In this article
Why might I need a mortgage when I'm older? Am I too old for a mortgage? How can older mortgage borrowers prove their income? What are retirement interest-only mortgages?
How much can I borrow with a retirement interest-only mortgage? Who offers mortgages for older borrowers? Retirement interest-only vs equity release Get expert advice on borrowing in retirement

hy might older borrowers need a mortgage?

Why might I need a mortgage when I'm older?

We are all living and working for longer, but getting hold of a mortgage in your 60s and older can be extremely tough. However, lenders are increasingly taking a more considered approach when lending to older people.

There are many reasons why older borrowers might want to take out a mortgage:

  • To purchase a retirement property which better suits your needs as you get older. 
  • Release cash from your property to top up your pension income.
  • Gift some of that money to a loved one to help them purchase a property. 

Another big motivation for some older borrowers is to remortgage away from their existing interest-only mortgage

These deals were very popular before the credit crunch, and allow borrowers to only pay off the interest on their loan every month, ahead of repaying the capital borrowed in full at the end of the mortgage term. 

However, thousands of these borrowers have no plan in place for repaying that capital, leaving them with the prospect of having to sell up and downsize unless they can remortgage.

You can find out more about this in our guide to interest-only mortgages explained.

Looking to borrow in later life?

Which? Mortgage Advisers can discuss your options for borrowing in retirement, and recommend the right deal for you.

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Am I too old for a mortgage?

Lenders consider two different ages when you apply for a mortgage. The first is your current age at the time of application. The other is the age you will be at the end of the mortgage when the debt will be fully repaid.

In the past, lenders have been uncomfortable about lending to borrowers into their retirement years. This was in part due to the tougher affordability tests lenders have to carry out on borrowers following the credit crunch, which force them to look closely at income and expenditure.

While this situation is improving, as lenders begin to adapt to the fact we are all living and working longer, it’s true to say that many lenders have an upper age cap which they will not consider lending beyond.

In other words, if you are 60 and want to take out a mortgage with a lender with an upper age cap of 75, you will not be able to secure a mortgage term longer than 15 years.

How can older mortgage borrowers prove their income?

In order to check that you can afford a mortgage in retirement, lenders will carry out a variety of different checks. These vary between lenders.

If you plan to work beyond state pension age, Halifax, for example, will consider your earned income up to the age of 70.

But you'll also need to provide a company pension forecast or annuity statement dated within the last 18 months as well as a state pension statement. If you are already receiving some form of pension income, you’ll need to provide you latest bank statement too.

With Nationwide, it comes down to how close you are to retirement. If retirement is less than 10 years away, it requires details of both your current and anticipated retirement income, and will then use the lower of those two figures for its affordability calculations. 

If retirement is more than 10 years away, your current income is used to calculate affordability, but it requires evidence of your pension planning beyond the state pension, such as a pension statement.

What are retirement interest-only mortgages?

Retirement-interest only mortgages are a relatively new set of products designed to help older borrowers who may struggle to get a standard residential mortgage.

They allow you to borrow against your property, and the only repayment you make is the interest that you're charged. They're very similar to interest-only mortgages but there are some key differences. 

With most RIO mortgages, you only repay the loan when you sell your property, move into residential care or die. But some retirement-interest only mortgages carry terms like a regular mortgage, meaning you either pay them back after a set number of years or when you reach a certain age - 90, for example.

Rather than the onerous steps you have to take to prove your income when a standard residential mortgage, as described above, you only have to prove that you can afford the interest.

Some retirement interest-only mortgages allow you to repay some capital as well as interest. This will cut down the size of your loan over time, meaning that more of your property can be passed onto your loved ones.

Which? Mortgage Advisers can help you understand your options for borrowing in retirement. Call them on 0800 197 8461.

How much can I borrow with a retirement interest-only mortgage?

Each lender will have different limits on how much you can borrow against your property.

If you're borrowing on an interest-only basis, you're likely to be able to borrow less than if you get a deal where you also pay down the loan. 

For example, you might be able to borrow 50% of the value of your property on an interest-only basis, and 65% on a capital repayment basis.

There will be other requirements too, such as a minimum property value, minimum income requirements and a minimum loan size. 

The final amount you can borrow will be based upon an affordability assessment, looking at your income and outgoings to make sure you can keep up repayments once your only sources of income are from pensions, savings or investments, and not income from employment. 

We've explained this in detail in the section below. 

Who offers mortgages for older borrowers?

A host of mortgage lenders have recently launched mortgage deals specifically aimed at older borrowers, as they begin to recognise that traditional mortgage products may not meet the needs of this demographic.

 

Aldermore Bank

 

Name of deal: 'Later Life Lending' range

Capital repayment or interest-only? These deals are available for both types of repayment. There are fixed-rate deals, ranging from 2, 3, 5 and 10 years, and variable rate mortgages. You can make overpayments to reduce the loan by 10% of its value each year without incurring fees. 

Property value: Your property needs to be worth at least £60,000. 

How much can you borrow: The minimum loan is £25,000. The maximum you can borrow is 60% of the property on an interest-only basis, and 75% of the property on a capital repayment basis. 

Minimum/maximum age: The minimum age to apply for these products is 55, the maximum is 85. The oldest you can be at the end of your mortgage term is 99 years old. 

Minimum income: There is no minimum income to take out the mortgages, but affordability is assessed using the lowest annual income you'll have over the term (for example, when your employment ends). Income sources can include employment up to the age of 70 and rental income up to the age of 85. 

How can I repay the loan: If you want to repay the loan early, you may face early repayment charges on the fixed-rate deals. Variable rate mortgages do not come with these fees. If you plan to sell your property to repay the loan, you need to have a minimum amount of equity: £300,000 in London and the South East, £175,000 elsewhere.

How to apply: Aldermore's mortgages are only available through a mortgage broker.

 

Bath Building Society

 

Name of deal: Retirement Mortgages

Capital repayment or interest-only? Bath's retirement mortgages are offered on an interest-only basis but you can make unlimited overpayments if you want to reduce the value of the actual loan.

Property value: Your property must be worth at least £100,000.

How much can you borrow: The minimum loan you can take is £50,000, the maximum is £500,000. The maximum loan-to-value is 50%. The amount Bath Building Society will lend is based on your income after expenses and outgoings. You could borrow 4.25 times your annual income between £20,000 and £50,000, and 4.5 times income over £50,000 a year. 

Minimum/maximum age: The minimum age is 65, there is no upper-age limit on the mortgage. 

Minimum income: Household income must be at least £20,000 a year after deductions. 

How can I repay the loan: The loan is repaid when you die or move into care and the property is sold. 

How to apply: You can apply directly with Bath Building Society or via a mortgage broker.

 

 

Hodge Lifetime

 

Name of deal: 55+ Mortgage

Capital repayment or interest-only? Hodge Lifetime offers two types of interest-only mortgage - the 55+ Mortgage and the 55+ Retirement Interest-Only (RIO) Mortgage. 

The 55+ Mortgage has a term between 10 and 40 years, depending on your age. The 55+ RIO Mortgage lasts for your lifetime. 

You can make overpayments to reduce the loan by 10% of its value each year without incurring a charge.

Property value: Your property must be worth at least £120,000 for the 55+ Mortgage and you must have £100,000 equity. The 55+ RIO Mortgage requires a property worth at least £100,000. The maximum property value is £3m.

How much can you borrow: You can take a minimum loan of £20,000 and a maximum of £1m. You cannot borrow more than 60% of your property's value. 

Minimum/maximum age: These mortgages are for people aged between 55 and 85 at application. For the 55+ mortgage, the oldest you can be when your term ends is 95. 

Minimum income: There is no explicit minimum income, but you have to be able to show you can afford monthly interest repayments for the lifetime of the mortgage. Hodge accepts employment, pension, investment, and rental income, but if your mortgage runs into retirement, you'll have to be able to show you can afford repayments with retirement income.  

How can I repay the loan: With the 55+ Mortgage, you can repay by downsizing, selling other property or investments. With the 55+ RIO, repayment is made on death or if you go into long-term care. 

How to apply: You can apply through a mortgage broker.

 

Leeds Building Society

 

Name of deal: Retirement Interest-Only

Capital repayment or interest-only? Leeds Building Society only offers these deals on an interest-only basis. You can currently get deals on a 2, 3 or 5-year fixed-rate basis. You can make overpayments to reduce the loan by 10% of its value each year without incurring fees. 

Property value: There's no minimum level of equity needed in your property to get access to a Retirement Interest-Only mortgage but the property itself must be worth at least £50,000.

How much can you borrow: The minimum loan size is £27,500 and the maximum is £1.25m - but the maximum loan to value is 55%. You will undergo an affordability assessment, based on your income and expenditure, to determine how much you can afford to borrow.

Minimum/maximum age: These mortgages are for people aged between 55 and 80 at application.

Minimum income: Leeds Building Society doesn't specify a minimum income, although you will need to provide evidence that you can comfortably afford to make monthly interest payments for the lifetime of the mortgage. 

How can I repay the loan: The loan is repaid when you die, sell the property or move into long-term care. There are early-repayment charges if you pay off your loan before the end of a fixed-term deal. 

How to apply: You can only access these deals through a mortgage broker.

 

Loughborough Building Society

 

Name of deal: Borrowing into Retirement

Capital repayment or interest-only? Loughborough Building Society offers both options, over terms between three and 25 years. You can make overpayments to reduce the loan by 10% of its value each year without incurring a charge. 

Property value: There's no minimum or maximum property value.

How much can you borrow: There's a minimum loan size of £25,000; a maximum of £300,000. The most you can borrow is 70% of your property's value.

For people applying before the age of 70, you can borrow up to 4.5 times your income. For those applying from the age of 70, you can borrow up to 3.5 times your income. 

Minimum/maximum age: These deals are for people aged 70 and over at application, or for people who will be over 70 by the end of their mortgage term. There are no upper age limits, and the minimum age at application is technically 45 for those looking to take out a 25-year mortgage. 

Minimum income: There are no minimum income requirements, but the Loughborough accepts 100% of pension income as evidence and 50% of investment income. You'll have to be able to show you can afford repayments for the term of the mortgage. 

How can I repay the loan: For capital repayment mortgages, your loan should be repaid at the end of the term. For the interest-only option, the building society says it will consider using the property as a way of repaying the capital borrowed at the end of the term.

How to apply: Either directly or through a mortgage broker.

 

Post Office Money

 

Name of deal: Retirement Link

Capital repayment or interest-only? Both options are available. With the interest-only option, the loan must be repaid before you reach 80. With the capital repayment option, you need to repay the loan by the age of 90.

Property value: For the interest-only option, your property must be worth at least £250,000, plus the value of your loan. So, if you borrowed £50,000, you'd need a property worth £300,000. You have to own your property outright to use the interest-only mortgage.

For the capital repayment option, your property must be worth at least £100,000.

How much can you borrow: You can borrow up to 30% of your property's value with the interest-only deal; 50% with the capital repayment deals. The minimum loan size is £25,001 and the maximum is £500,000. 

Minimum/maximum age: For the capital repayment mortgage, the maximum term is 35 years, and the loan must be repaid by the age of 90, so this deal could work for people who are at least 55 years old. The minimum term is five years, meaning the maximum age at application is 85. 

For the interest-only deal, the maximum term is 25 years, and the loan must be repaid by the age of 80, so the minimum age at application is 50. The shortest term available is five years, so the maximum age at application is 75.

Minimum income: Post Office requires a minimum income, made up of state and private pensions, of £15,000 a year. It will only look at guaranteed income when assessing whether or not you can afford to take out the mortgage - so private pension income will need to come from a defined benefit and final salary pension or from annuities.

How can I repay the loan: The capital repayment mortgage will be repaid by the end of your term. But the interest-only mortgage can only be repaid by selling the property the mortgage is taken out against - not from any other investments or sources. Think carefully about whether this will be too restrictive for you. 

How to apply: You can apply both directly through the Post Office or via a mortgage broker.

 

Scottish Building Society

 

Name of deal: Retirement Interest-Only Mortgage

Capital repayment or interest-only? You can only take out this mortgage on an interest-only basis. You can make overpayments to reduce the loan by 10% of its value each year without incurring a fee. 

Property value: There's no minimum.

How much can you borrow: The maximum you can borrow is 50% of your property's value. The minimum loan is £30,000 and the maximum is £300,000. Noting these limits, you could borrow up 4.5 times your income if you're applying on your own, or 3.5 times your joint income if applying as a couple. 

Minimum/maximum age: There's no maximum age at application, but you have to be at least 60 to apply. 

Minimum income: There is no minimum income, but you have to be able to prove you can afford the interest repayments for the lifetime of the deal. You'll have to provide evidence of pension and other 'sustainable' income when applying.

How can I repay the loan: The mortgage can be repaid when you die, move into care or sold your property.

How to apply: You can apply directly through the building society or via a mortgage broker.

 

Shawbrook Bank

 

Name of deal: 55 Plus Interest-Only Mortgage

Capital repayment or interest-only? This is an interest-only deal, which must be paid off in full at the end of the term. 

Property value: Your property needs to be worth at least £185,000, and you need to have at least £125,000 in equity. If you're in London and the South East, however, you need £250,000 in equity. 

How much can you borrow: You can borrow a maximum of 60% of your property's value, up to £1m. But you can only borrow £30,000 if you're looking to pay off debts. 

Minimum/maximum age: People aged between 55 and 75 can apply for a mortgage, but the term of the mortgage must end at the age of 85. That means the longest term of the mortgage is 30 years, and the shortest is 10 years. 

Minimum income: You need to have a minimum income of £16,500 a year. Shawbrook accepts employment income up to the age of 70, but after that age, it will only accept pension income as a source of income to meet repayments. 

How can I repay the loan: You need to make separate arrangements to pay off the loan at the end of the term. This could be through the sale of property or other means. You can make unlimited overpayments to reduce the balance of your loan or pay it off early without any penalties. 

How to apply: You can apply directly through the bank or via a mortgage broker.

 

Tipton & Coseley Building Society

 

Name of deal: Retirement Interest-Only Mortgage

Capital repayment or interest-only? Tipton has a range of mortgages, including fixed and variable-rate deals, on an interest-only basis. But you can make overpayments of up to 10% of the value of the loan to reduce it each year without incurring fees. 

Property value: Your property needs to be worth at least £75,000, or £250,000 if you live around the M25. 

How much can you borrow: You can borrow up to 60% of your property's value, up to £1m. The minimum mortgage is £50,000.

Minimum/maximum age: The minimum age at application is 55. There is no upper age limit.

Minimum income: Tipton doesn't have a minimum income but it will look at your sources of income in retirement, and expenditure, to assess whether you can afford to make the monthly interest payments for the lifetime of the mortgage. 

How can I repay the loan: The loan must be repaid following what Tipton calls a 'life event'. This could be the sale of your property, you going into long-term care, or death. 

How to apply: You can apply directly through the building society or via a mortgage broker.

 

Vernon Building Society

 

Name of deal: Retirement Mortgages. 

Capital repayment or interest-only? Vernon offers two retirement mortgages, available on both an interest-only and repayment basis. You can get a discount on your mortgage interest rate if you have Lasting Power of Attorney set up. 

Property value: There's no minimum property value.

How much can you borrow: Vernon will lend you up to 50% of your property's value. The minimum loan is £25,000; the maximum is £250,000.

Minimum/maximum age: There are no upper age limits for the mortgages; the minimum age at application is 55. Vernon says that these products are most suitable for those who will be aged 85 and over when the mortgage term ends. 

Minimum income: There are no minimum income requirements, although you will be assessed on the affordability of the mortgage based upon having a sustainable pension income for the lifetime of the mortgage.

How can I repay the loan: You can pay off the loan in full whenever you want, with no early repayment charges. if necessary, the loan can be repaid through the sale of your property when you die or move into long-term care. 

How to apply: You can apply directly through the building society or via a mortgage broker.

Retirement interest-only vs equity release

Retirement interest-only mortgages share some similarities to equity release, in that they both allow you to tap into your property's value you to get access to some cash. 

With equity release, you borrow a portion of the property’s value, but do not make monthly repayments. Instead, the debt is repaid once you die or move into long-term care and the property is sold. These products are typically called 'lifetime mortgages'.

Because you don’t make repayments, the debt grows over time and can erode the value of your property. This is not the case with a retirement interest-only mortgage.

Let's look at an example. You own a property worth £200,000. You want to borrow 50% of this, meaning a loan of £100,000.

In 15 years' time, your property is worth £300,000, and you go into care, so the loan is due to be repaid. The interest rate is 5%. 

Equity release

  • Your monthly repayments: £0
  • Total value of the loan after 15 years: £141,304
  • How much is left after repaying the loan: £158,696

Retirement-interest only

  • Your monthly repayments: £416
  • Total value of the loan after 15 years: £100,000
  • How much is left after repaying the loan: £200,000
  • Total amount of interest paid: £74,880

With equity release, the nature of the loan has reduced what's left of your property that you can pass on or use to pay for care, while the repayments you've made on the interest-only mortgage has left more. 

If you are considering equity release, it’s really important that you get advice from a qualified financial adviser. Find out more in our guide to equity release.

Get expert advice on borrowing in retirement

If you're looking to get a mortgage at an older age, Which? Mortgage Advisers can talk you through your options. Call them on 0800 197 8461 or complete the form below. 

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