Around three million homeowners expect to still be paying back their home loans into retirement – and lenders are responding by launching increasing numbers of mortgages for older borrowers.
One in five (21% of) mortgage holders – which works out at around three million people – worry that they’ll still be paying their mortgage off into retirement, according to a survey by mortgage broker L&C.
Over half (58%) don’t know how they’ll keep up their repayments when they’re no longer working, and 53% of that group are already aged over 55, meaning time is running out to make a plan.
Here, we explain the options for retired mortgage holders, from retirement interest-only mortgages to downsizing.
- For a free chat about your mortgage options, whether you’re pre- or post-retirement, call Which? Mortgage Advisers on 0800 197 8461.
Lenders innovate to cater for ageing population
Perhaps unsurprisingly, more than a quarter (26%) of survey respondents said that the thought of having a mortgage beyond the age of 65 made them anxious – and 8% of those aged over 55 didn’t think they’d ever be mortgage-free.
But is this necessarily a bad thing? Historically, UK homeowners have always aimed to pay off their mortgages by the time they reach retirement (and most providers have only agreed to lend on this basis) – but the ageing population coupled with many people having to wait longer to buy their first home has prompted some lenders to innovate.
Many have begun launching ‘retirement interest-only’ mortgages, which bridge the gap between repayment mortgages, standard interest-only mortgages and equity release, while some are also offering part-repayment, part-interest-only deals.
What is a retirement interest-only mortgage?
This new type of deal – which some have dubbed the ‘RIO’ mortgage – is designed for retirees who may struggle to get approved for a repayment mortgage because of their age and reduced income.
As the name suggests, you just pay back the interest (and none of the capital) each month; the loan itself is only paid back once the mortgage ends. In this regard, RIOs are just like regular interest-only mortgages.
However, most retirement interest-only mortgages come with indefinite terms, meaning they only need to be paid back when you die or go into long-term care and the house is sold. Leeds Building Society and Hodge Lifetime are two of the six lenders offering this type of RIO mortgage (see table below for full list).
Four lenders are offering retirement interest only-mortgages with set terms, though. This means you either pay the mortgage off after an agreed number of years (up to 25 if you borrow from Loughborough Building Society or Post Office Money) or by a certain age – for example, 85 with Shawbrook Bank or 99 with Aldermore.
- Find out more: retirement interest-only mortgages explained
Who’s offering RIO mortgages and what are the eligibility criteria?
The following table details every lender currently lending to retirees on an interest-only basis. Affordability criteria are explained in our full RIOs guide.
|Retirement interest-only mortgage lender||Min property value||Min/max loan||Max LTV||Min/max age at application||Allows overpayments?||When is the capital repaid?|
|Aldermore Bank||£60,000||£25,000 upwards||60%||55 – 85||Up to 10% per year fee-free||At end of term (max age 99)|
|Bath Building Society||£100,000||£50,000 – £500,000||50%||65 – no max||Unlimited||On death/sale of property if you move into care|
|Hodge Lifetime||£100,000||£20,000 – £1m||60%||55 – 85||Up to 10% per year fee-free||On death/sale of property if you move into care|
|Leeds Building Society||£50,000||£27,500 – £1.25m||55%||55 – 80||Up to 10% per year fee-free||On death/sale of property if you move into care|
|Loughborough Building Society||None||£25,000 – £300,000||70%||70 – no max||Up to 10% per year fee-free||At end of term (max term 25 years)|
|Post Office Money||£250,000 + value of loan (you must own the property outright before taking out the mortgage)||£25,001 – £500,000||30%||50 – 75||Up to 10% per year fee-free||At end of term, which can be from 5-25 years|
|Scottish Building Society||None||£30,000 – £300,000||50%||60 – no max||Up to 10% per year fee-free||On death/sale of property if you move into care|
|Shawbrook Bank||£185,000, with at least £125,000 in equity (or £250,000 equity if you’re in London/the south east)||Up to £1m||60%||55 – 75||Unlimited||At end of term/age 85, whichever comes first|
|Tipton & Coseley Building Society||£75,000, or £250,000 if you live around the M25||£50,000 – £1m||60%||55 – no max||Up to 10% per year fee-free||On death/sale of property if you move into care|
|Vernon Building Society||None||£25,000 – £250,000||50%||55 – no max||Unlimited||Whenever you choose, or on death/sale of property if you move into care|
Source: mortgage lenders’ websites
Could equity release be an option?
If, through a combination of mortgage repayments and capital growth, you’ve built up a decent chunk of equity in your home despite still having a mortgage on it, you might be considering equity release.
This enables you to get cash out of your property but continue living there, which could enable you to pay off your remaining mortgage.
However, equity release schemes carry significant pitfalls – chiefly their cost – so it’s well worth talking to a mortgage broker first to get a sense of your remortgaging options.
Lenders are increasingly sympathetic to people who need to borrow later in life, and those who use manual underwriting (typically building societies) will be able to consider your personal circumstances to make an informed decision on whether to lend to you.
- Find out more: what is equity release?
Alternatives to RIOs and equity release
Many retirees, regardless of whether they have a mortgage or not, downsize to a smaller home. This could enable you to pay off your mortgage altogether, or at least move to a smaller one, depending on the amount of equity you’ve built up.
Another option favoured by many is to withdraw a tax-free lump sum from their pension – you can usually access up to 25% of your pension pot in this way.
There are pros and cons to doing this, and whether it’s right for you will depend on a number of factors. To understand more, read our guide: should I take a lump sum from my pension?
Get free, personalised advice from a friendly expert
Mortgages are complex at the best of times and when you’re nearing retirement age the options can be even more complicated.
For a free consultation with a Which? expert, who can explain the pros and cons of each remortgaging approach and tell you which one would best suit you, call Which? Mortgage Advisers on 0800 197 8461 or fill in the form below for a free call back. (Unfortunately Which? Mortgage Advisers cannot advise on equity release.)
Your home may be repossessed if you do not keep up repayments on your mortgage.
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