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Are Mortgages Available in Retirement & What Income Is Acceptable To Lenders?

Wednesday, June 30th, 2010

It is becoming more common for people reaching state retirement age to still have a mortgage running into retirement.

Even more so, there is a growing demand for extra mortgage lending once they are in retirement.

Here we discuss what retirement mortgage options are available, acceptable income sources & where to look for independent advice on these matters.

There can be many reasons for having a mortgage beyond state retirement age; namely poor performing low cost endowments, previous unemployment or even long term health issues.

A mortgage that runs into retirement can have major issues with both affordability & term to its repayment date. Most lenders will require repayment on a mortgage by age 75.

We will now look at ensuring all available income is being claimed. Once researched, we can then discuss which of these are eligible for inclusion in mortgage affordability calculations.

So what options are available on reaching retirement itself?

Well this will depend on affordability & how the financial management of the mortgage itself can continue. The main issue with regards to affordability of an interest only mortgage at retirement is how much retirement provision has been made & maximising any other available sources of income.

What Type of Retirement Incomes Should I be Receiving?

Having reached state retirement age the state pension will become available. However, the level of this is dependent upon national insurance contributions paid over one’s working life. The current basic state pension is £97.65pw & on its own would not be sufficient to support an interest only mortgage payment alone. State Earnings Related Pension Scheme (SERPS) & any entitlement to the graduated state pension can possibly boost the state pension somewhat, but not substantially.

State pensions are a source of income that can be utilised towards a mortgage in retirement.

Company pension scheme members can benefit greatly with additional pension income that could be index-linked yearly & be calculated dependent upon the number of year’s service.

There is also evidence that personal pension plans can also boosting retirement income. Increasing importance is being placed in this area on seeking independent financial advice. Due to falling annuity rates it is more important to shop around & optimise your pension fund. Annuity providers can now enhance your pension income if poor health issues exist.

Both company & personal pensions are a source of income that can be utilised towards a mortgage in retirement.

With the recent economic downturn we have unfortunately seen the reduction in bank & building society interest rates. This has affected investors, once reliant on good interest payments, which would supplement their lifestyle. Again ensure you shop around to obtain a higher interest with your savings is more important than ever. Tax payers should make use of their annual cash ISA allowance of £5100 & non-taxpayers should ensure that Inland Revenue form ‘R85′ is completed in order they can obtain their interest paid gross.

Savings interest can be a source of income that can be utilised towards a mortgage in retirement.

It is also important to check whether any means tested benefits are available from the Department of Work & Pensions. Dependent upon age there may be eligibility for certain benefits such as pension credit & savings pension credit.

Income levels below £132.60pw for a single person & £202.40pw (2010-2011) jointly could allow a claim for pension credit to be made. Also, check any entitlement to council tax benefit availability, which even though it cannot help mortgage payments directly, it can lower the monthly outgoings.

If there are disability issues then depending on the condition, disability living allowance (DLA), attendance or even carers allowance may be available.

Lenders have different rules on means tested benefits - to see which qualify for a mortgage in retirement contact Equity Release Supermarket on 0800 783 9652

Maintaining employment through or into retirement does obviously alleviate some of the financial issues. However, experience has shown that there are difficulties in gaining employment.

Nevertheless, it is increasingly apparent that people are now looking to continue working into retirement & provide extra cash to support retirement lifestyle. If part time work can be found then it can not only assist the budget, but also the soul. People in retirement are feeling & looking younger & with more activity in retirement their average life expectancy is rising as social constraints are removed.

Employment income will only help people with existing mortgages going into retirement, but not anyone trying to obtain a mortgage in retirement. Lenders will only accept employment income if a new mortgage is to be repaid before state retirement age.

Secondary investment properties can provide a form of rental income which can be used towards paying a mortgage in retirement. However, if any existing buy to let mortgage is in operation this will need to be declared & considered as part of the application.

As long as a tenancy agreement is in existence then this will be considered by the lender.

Although not a specific means of retirement income, equity release schemes can also be considered a means of retirement support. The flexibility of drawdown equity release schemes now incorporates the use of drawdown facilities which are essential in supplementing a flexible lifestyle.

These drawdown equity release schemes provide an initial tax free capital lump sum, with an additional reserve facility that can be gradually withdrawn over future years.

Equity release lenders such as Just Retirement permit additional withdrawals in small amounts of £2,000 a time, which helps retirement planning & provides financial security for the future.

Another method of providing income from equity release is through a Home Income Plan. These equity release plans involve a combination of two products; a Home Reversion scheme & a lifetime annuity. The home reversion company purchases a percentage of the property in return for a tax free cash lump sum. The lump sum can then used to purchase the annuity which can then generate the lifetime pension income required.

Both these equity release schemes will not assist in obtaining a mortgage in retirement. However, in their own right they can provide alternative capital or income in retirement with no monthly payments.

As you can see there are various income sources which mortgage lenders can consider.

With recent restriction on lending criteria, it is more important than ever to obtain independent financial advice on this specialist area of retirement mortgage finance.

For further information & advice on mortgages in retirement, please click here for details of interest only mortgages currently available.

Alternatively please contact Mark Gregory on 0800 783 9652 or email mark@equityreleasesupermarket.co.uk

Tags: Add new tag, equity release, equity release schemes, Halifax, Halifax Interest Only Mortgage, Halifax Mortgage, Halifax Retirement Home Plan, Home Retirement Plan, interest only mortgage, Just Retirement, lifetime mortgages, Mortgage in retirement
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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 upto a maximum age of 85.

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, investment income etc 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 783 9652 or email mark@equityreleasesupermarket.co.uk

Tags: Add new tag, Coventry Building Society, equity release, Godiva mortgage, Halifax Home Retirement Plan, Home Retirement Plan, interest only mortgage, Leeds Building Society, lifetime mortgages
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Has Halifax’s Retirement Home Plan Been Overlooked As An Equity Release Alternative?

Friday, December 11th, 2009

At a time when the equity release market is downsizing with the withdrawal of many lenders, alternative funding sources need to be recognised to help widen the options available.

It is in the generic mortgage market that some unique & flexible mortgage products can be sourced that offer an alternative to the traditional roll-up lifetime mortgage; it is one of these that I write about.

Upon gathering client details & ascertaining a generous disposable income, sometimes it can be evidenced that monthly payments can be afforded into retirement.

However, there is a common misconception that someone in retirement cannot have a mortgage.

This is incorrect.

Providing income multiples can justify the borrowing requirements, then research can be sought that would provide recommendations of suitable mortgage products.

However, providers that can lend into retirement have varying criteria with regards to age & the term permitted & here advice & a knowledge of the market comes into the domain of an experienced independent financial adviser.

The options available would be dependent on budget, but also on attitudes as to how much inheritance is to be left at the end of the day.

Should it be imperitive that the maximum inheritance remain, then a capital & repayment mortgage should be advised.

Conversely, if this is not a major issue then an interest only mortgage can be recommended which will maintain the balance at the same level throughout the term of the mortgage.

Some of the major lenders such as Abbey & Alliance & Leicester do have a maximum age of 75, by which time the mortgage must be repaid. A few will lend to age 85 such as Leeds Building Society which does give more time for the mortgage to run, however, this may only be suitable for capital & repayment mortgages, not interest only mortgages.

Therefore, should you be looking for equity release in retirement, have surplus monthly disposable income, wish to ensure an inheritance for your beneficiaries & want the mortgage on an open-ended basis then look no further than the Halifax.

It may come as a surprise that such a product may be available with a mainstream lender, however it has become more evident how this product can fulfill in-retirement needs.

The Halifax Retirement Home Plan can release cash over a maximum 40 year term, which for someone already near to, or actually in retirement, should be sufficient!

They will only permit this product upto 75% of the property value, however this is not usually not an issue due to the amount of equity in retirees properties. Finally, dependent on whether a mortgage currently exists, we can also obtain for you a free valuation & free legal fees.

They will also allow the product to use the mainstream Halifax interest rates such as their 2 year base rate tracker at 2.79%, which for a £50,000 interest only mortgage would equate to a payment of only £116 per month.

Obviously, consideration must be given to future potential changes that may affect the mortgage, such as the death a mortgagor which would reduce the household income & in turn affordability of the mortgage. However, this can be catered for with a life insurance policy which would repay the mortgage should either party die.

Alternatively, it should be borne in mind that if the level of borrowing is kept to within current equity release lending limits, then if one party did die, the surviving party could repay the mortgage with an equity release plan. This would resolve any affordability issues, as no monthly payments would be required thereafter.

Having completed several of these products recently, I can vouch for the speed of transacting this deal - 4 weeks, which compared to an equity release application is quicker too.

Therefore, rather than just assuming equity release is the only solution, ensure you receive advice from an independent financial adviser - which Equity Release Supermarket can provide.

For further information & eligibility for the Halifax Retirement Plan please contact Mark Gregory on 0800 783 9652 or alternatively email mark@equityreleasesupermarket.co.uk

Tags: equity release, equity release schemes, Halifax, Home Retirement Plan, interest only equity release, interest only mortgage
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