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The Halifax Retirement Home Plan – The Quest To Find Mortgages For Pensioners?

Tuesday, October 26th, 2010

Planning for your retirement in essence should start in your earlier years; however as we know life unfortunately doesn’t always go to plan!

Here we discuss the merits of the niche interest only mortgage product; the Halifax Retirement Home Plan which is becoming an increasingly popular way of providing mortgages for pensioners.

Since writing my original article on the Halifax Equity Release plan (click here to view), interest has certainly been escalating. The main reason being that people in retirement are unaware of their mortgage options once they finish work. But life must go on.

 

What is the history of the scheme?

Established in 1984, the Halifax Retirement Home Plan was initially available through the Halifax branch network and was developed to provide low cost mortgage finance for the retired & elderly.

However, under the Financial Services Authority review of the lifetime mortgage market in 2006, Halifax withdrew the branch license to offer lifetime mortgage advice.

Therefore, the responsibility for providing advice on the Halifax Retirement Home Plan was left completely with lifetime mortgage qualified advisers including independent specialists Equity Release Supermarket.

 

So what is the Halifax Retirement Home Plan?

In simple terms the scheme is an interest only mortgage for people who are retired & facilitates the release of equity tied up in the property. The release of funds can be for almost any purpose including:-

  • Debt consolidation including paying off credit cards/loans or mortgages
  • Holidays including cruises or just day trips
  • Replacement car or caravan
  • Home improvements
  • Gifts to the children providing a deposit for house purchase
  • Supporting your lifestyle through retirement.

Qualification for the Halifax equity release scheme is based on income. Halifax will only accept non-earned income & this must be in the form of: –

  • Occupational pensions
  • Private pensions such as personal pensions or retirement annuities
  • State pensions
  • State benefits including pension credits & disability benefits

The stated minimum age for the Halifax Retirement Home Plan is 65. However, as long as there is no earned income & justification for the size of the mortgage can be based solely on the above income, then ages lower than 65 can be achieved.

 

How much can be released?

The minimum release on the Halifax Retirement Home Plan is only £15,000. However, to establish the maximum release possible would require the use of an affordability calculator.

Halifax does not base the size of release on a multiple of income, but whether the interest only mortgage can be afforded through retirement.

The data Halifax requires for this calculation includes income, credit status, number of applicants & credit commitments outstanding after the new mortgage commences.

This procedure can be carried out by qualified adviser such as Equity Release Supermarket & is an accurate assessment of the potential borrowings on this scheme.

The overall maximum release available can never be more than 75% of the valuation of the property. Therefore, should the affordability calculator show a figure greater than this, it will still be capped at 75% of the property value.

 

Does Halifax require a repayment vehicle?

The answer to this is NO.

As the Halifax Retirement Home Plan is an interest only mortgage for pensioners, no form of repayment is required.

In contrast, the mainstream mortgage market is actually tightening its grip on new interest only mortgages, whereas this Halifax equity release scheme will still accept repayment by virtue of the eventual sale of the property. This would be on death of the surviving partner, moving into long term care or earlier property sale.

The term allocated to the Halifax home retirement plan is 40 years which should provide ample time for it to run for the rest of one’s life! This removes any concern about having to find the funds to pay off the Halifax scheme during your lifetime.

Most mortgage providers will only accept a mortgage term upto age 70-75 or in rare instances age 85. However, this only buys time as eventual repayment would be required. However, this scenario may still be suitable should one be downsizing at a predetermined date in the future.

The Halifax Retirement Home Plan therefore removes any element of capital repayment risk.

 

So what interest rates & products are available?

Dependent upon whether you are a new or existing Halifax customer will determine the interest rates & products applicable.

 

Currently, the better deals are offered to new customers as they have access to the whole mainstream Halifax product range. This is a great advantage, as there is full access to current low rate tracker & fixed rate products. Click here for the latest interest only mortgage rates…

These include deals such as the current 2 year tracker rate at just 2.59%. Based on borrowing £50,000 this currently would only cost £107.92pm (3.6% APR).

 

Additionally, if remortgaging from another lender then there is the benefit of a free valuation & free standard legal fees, which reduces the set up costs significantly. I have experienced clients who have just £800 outstanding on a mortgage or even documents kept in deed store that qualified for this free remortgage package!

 

What if I already have a Halifax mortgage?

The good news is you can still apply for the Halifax Retirement Home Plan. However, the situation here requires completely different advice & procedure. Should you wish to merely transfer onto the Retirement Home Plan then you can port over your existing rate which can be good news if on a standard variable rate. However, if you wish for additional borrowing then the process becomes a little more complicated.

The product range for existing Halifax customers is rather sparse & with the best deals starting currently at 4.99% fixed, hence there is a distinct advantage for new customers.

 

Such applications will be paper based & therefore processed manually which involves more human input. Experience has shown this results in a different underwriting approach to the process undertaken on new applications.

 

Can I pay off the Halifax Retirement mortgage early?

The simple answer to this is YES.

Unlike equity release plans where penalties can potentially apply for the rest of your life, the Halifax interest only mortgage will only have early repayment charges for the initial product term. Therefore, should you have opted for the 2.59% 2 year tracker product discussed previously, the penalties would only apply for the first 2 years. After, this 2 year period the mortgage would then revert to the Halifax standard variable rate, currently 3.5%.

However, before the initial rate expires you will have the option to take out a new product from the Halifax mortgage range available at that time.

 

So what is the advantage of the Halifax Retirement Home Plan over an equity release scheme?

The obvious answer to this is the fact that the Halifax mortgage is interest only & therefore requires a monthly payment of interest. The balance will always remain the same throughout the term of the plan. E.g. borrowing £50,000 today, will result in £50,000 requiring repayment once the house is sold.

In contrast, equity release schemes do not require any monthly repayment & therefore the balance will increase over time. Roughly speaking the balance of equity release schemes will double every 10/11 years.

From a beneficiary’s point of view, the Halifax interest only mortgage will guarantee an inheritance, as the final balance of the mortgage will always be known. This would be favourable for people who want to ensure the children definitely receive an entitlement to their parent’s inheritance.

 

With all this information & options available it is more important than ever to receive specialist advice to obtain the best deal for your personal circumstances.

Equity Release Supermarket can provide independent advice on both equity release schemes & interest only mortgages for pensioners.

For further information or to request a quotation, please ring Mark on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

Can I Have A Mortgage In Retirement?

Sunday, February 7th, 2010

Although many pensioners are eligible for a mortgage in retirement, many are not even considering this as an option, or even aware they could apply for one.

 

Equity release can be a final solution for borrowing in retirement once all other potential avenues of capital raising have been explored, however equity release can be expensive & sold all too quickly without looking at the alternatives. It is a common misrepresentation that just because people are near to, or in retirement, that they cannot raise funds via a conventional mortgage.

 

This is grossly incorrect.

 

As part of any capital raising initiative, all options must be considered & eliminated as necessary upon discussion between client & adviser. By ascertaining disposable income & the clients future intentions with regards to their property, occupation & selected retirement date the adviser can provide recommendations accordingly.

 

There are two ways that lenders will look at potential mortgage cases: – pre retirement & post retirement income: –

Should one still be working, most lenders will consider employment income only up to a maximum age of 65. The amount that could be borrowed would be based on a multiple of income which varies from lender to lender. It can also be based on affordability, taking into account gross incomes & making deductions for any loans, credit cards or other outstanding debt.

 

However, how does this affect people considering working beyond normal retirement age of 65? Not to worry, as there are still a few lenders that would permit this & this is where specialist independent mortgage advice should be sought.

 

For example Leeds Building Society will take into account current employment income into retirement should they be aged under 60, regardless of the normal state pension age. Leeds will actually permit the mortgage term to extend into retirement up to a maximum age of 80. The Leeds Retirement Plan must have a minimum term of 5 years and have commenced before the age of 70. For joint applicants this would apply to the oldest applicant, not like equity release which bases it on the youngest applicant. Further constraints have now been placed on the Leeds Retirement Plan product in that the maximum loan-to-value must be 50% and following the release there must still be £150,000 equity remaining in the property.

 

It must be stressed to the client however that  payments must be maintained & this could be difficult should employment cease prior to the end of the selected mortgage term. However, for some this could certainly be an option should their future pension income still be substantial.

For many lenders though, should the mortgage term extend beyond age 65, then only post retirement income will be considered. This could be income such as a state pension, company & private pensions & some disability benefits etc which are not reliant on employment.

 

However, due to the lower levels of income at retirement age, this would result in reduced borrowing power into retirement & consequently smaller mortgages. Dependent upon age, the mortgage term would be determined by the maximum age at expiry of the mortgage. Again, many lenders cautiously use 75 as the maximum expiry age. Should the lender only permit a capital & repayment mortgage, due to the short term this could be expensive.

 

Therefore, an interest only mortgage could be an alternative if the loan to value is below 75%. Again, access to specialist advice can result in finding lenders that can potential lend beyond age 75 & also on an interest only mortgage basis. Should adequate pension provision have been made, then lenders acknowledging this are available & will lend beyond age 75. Leeds Building Society, Godiva & Halifax’s Retirement Home Plan will fit the bill here. All three will lend to a minimum age of 85 & in the case of Halifax they will extend to a term of 40 years; more than sufficient for most!

 

Therefore, before rushing into borrowing in retirement, bear in mind that yes, equity release is an option, howoever is it the best option for everyone? Probably not & as surprisingly advised to some of my retired clients, (pleasing most as a result) they could be too YOUNG for an equity release! Therefore,  consider the affordability of a mortgage first, as it could be a lot less costly for your beneficiaries than an equity release plan.

 

For further details on mortgages in retirement & to check eligibility please contact Mark on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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