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Posts Tagged ‘State Pensions’

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

 

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 678 5159

 

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 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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