Later Life Lending is a growing market
By Million Plus, part of largemortgageloans.com
Later Life mortgage products are aimed at those, approaching or already in retirement, who are looking to buy a property or remortgage.
Many high street banks will not offer interest only lending lend beyond the age of 70, however largemortgageloans.com have access to lenders who take a more pragmatic approach to lending to older borrowers. Bespoke lending may be available where age is not the ultimate factor in the decision to lend.
Within the UK, lifestyles and healthcare are improving, resulting in a continual increase in life expectancy. As well as the population living longer and thus requiring mortgage products later in life, there is increased pressure on older generations to support younger family members, specifically to get on the housing ladder. With the equity in their homes, older family members could be well-placed to offer this support.
Lenders are reacting to this by placing an increasing number of later-life lending products on the market, to meet the demand of changing borrower profiles. Caroline Burke, Associate Director at largemortgageloans.com takes a look at the different options available to clients who are considering this option.
“There has been increasing growth in Later Life lending products aimed at applicants who are 50+ who are not yet ready to repay their interest-only mortgage but have the income to keep on servicing the mortgage on a monthly basis. For customers who find themselves in this situation, there are a number of options they can look at.”
Term Interest Only (TIO)
TIO is a Term Interest Only mortgage or also known as a 50+ mortgage where the mortgage term has a specified end date. This is available for clients over age 50 who may still be working, or who may already have retired. The clients can choose the term of the loan that they would like, and at the end of the term the client will need to repay the interest only loan in full or remortgage to a different mortgage type such as Retirement Interest Only or Equity Release. A TIO will usually be open to borrowers up to a maximum age of 75 or 80, depending upon the lender. Lending is based on affordability with pension income and some types of employed or self-employed income taken into account, depending upon profession.
Retirement Interest Only (RIO)
Retirement Interest Only (RIO) mortgages can bridge the gap between an interest-only mortgage through a high street lender expiring and equity-release mortgages. They are targeted at borrowers aged 55 and over. RIO mortgages are based on affordability rather than age and LTV, and the interest must be serviced on a monthly basis. The lending can be based on State pension, private pension, rental income, and investment income and can be considered up to 75%LTV. Affordability is calculated on the mortgage being affordable if one of the applicants passes away during the term of the loan, and can be fixed for up to 5 years or longer. The mortgage has no end date and will be repaid either when the second borrower passes away or moves permanently into a care home.
Equity release or Lifetime lending
Equity release lending is for applicants aged 55+ with the lending and maximum loan-to-value based upon the value of the property and the age of the youngest applicant. Affordability is not taken into account. The interest is rolled into the loan and compounded over the term. The loan is eventually repaid when the second applicant passes away or permanently moves into a care home. The interest rate is fixed for the lifetime of the loan. Equity release lenders will be more particular than a RIO lender about the types of properties they will lend on, and the LTVs are conservative to allow for the interest to be rolled into the loan.
It is now possible with many lenders to make overpayments of up to 10% of the original loan amount borrowed per annum, or even to service some, or all of the interest each month, to minimise the amount of interest rolled into the loan.
Caroline concludes “there’s now more lending options available for borrowers who are aged 55 and over than ever before, so it’s important to receive professional advice from a qualified and experienced adviser.”
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