More people are retiring with outstanding mortgages with over 350,000 over 65’s still having a mortgage. The Financial Conduct Authority has indicated that on average 40,000 retired people a year over the next decade will see their deals end, so they will have to use their savings to pay off the mortgage debt or downsize, or alternatively they could attempt to remortgage.
In the distant past this situation would not have occurred with nearly all mortgages being conducted on a repayment basis. The situation changed as the market became more flexible with endowments and pure interest only mortgages taking centre stage. Interest Only Mortgages allowed people, during difficult times, when interest rates were high, just to pay interest and therefore being able to keep the roof over their heads. This practice was extended with many first time buyers and home movers stretching the amount they could borrow, and opting for interest only mortgages for the early years until they got on their feet. Unfortunately many people did not or could not grasp the nettle at a later date and the mortgage balances remain at the same level now as they did at outset.
Many thought with some justification at the time with Self Cert Mortgages, and being able to take out mortgages with many lenders to 80+, that the day of reckoning would never arrive with regard to paying off the mortgage. They also thought that even if mortgages/remortgages became more difficult, they could always downsize or use equity release as they thought house prices only move upwards. However, they have become disappointed with banks withdrawing from lending into retirement partly due to the financial crisis bringing in tougher regulations. Also due to sluggish house prices downsizing is not realistic for many, and equity release products tend not to lend past 40% of the value of your property, therefore outstanding loans often cannot be wiped out by the equity release option. So although lending into traditional retirement age accounts for only a small percentage of the overall market, it is rising with people working longer and taking out mortgages later, although as mentioned earlier lenders tend to be taking a tougher approach with them looking to be paid off between ages 65 and 70. For many with interest only mortgages coming to an end without a repayment vehicle or people just wanting to take out mortgages into retirement, the lender pronouncements make depressing reading. But there is some light at the end of the tunnel with some smaller building societies appear to have stolen a march on their bigger brothers with many prepared to lend money at competitive rates to retired borrowers until they are in their 80’s, although most of the mortgages have to be conducted on a repayment basis. Also the change in pension legislations allowing people to access pension pots can help some people solve their mortgage headache.
The message for people heading towards retirement and wanting to take out a mortgage is to contact an Independent Financial Adviser who specializes in mortgages to see if it is possible. For people with interest only mortgages that will not be paid off at the end of the term, it is to make contact initially with your lender to try to make plans for repayment with them, but if this fails again contact a broker to see if they can come up with a satisfactory solution.
Kieron Bassett
15th September 2014
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