What is the Maximum Age for an Interest Only Mortgage Running into Retirement?
The previous success of the interest only Halifax equity release mortgage, and the void its withdrawal created, only goes to show that the need for interest only lifetime mortgage products does exist in retirement. But although there is a rise in demand for niche retirement mortgages, there is a lack of response from the mainstream mortgage market to cater to this demand. We are increasingly aware of the FSA’s stance on interest only mortgages, however retirement mortgages are a whole different proposition.
There is no single age limit that applies to all mortgages available out there, but currently interest only lifetime mortgages are only made available to people over the age of 55 years. Normally, residential interest only, or even capital and repayment mortgages can only continue to a maximum age of 70 or 75 years.
If you have a mortgage from your pre-retirement days then it would normally have been arranged to coincide with your selected retirement date, normally age 60-65. The problem has been that lenders sometimes bypassed this rule of thumb & allow a pensioner mortgage to go beyond this cut off point.
This is particularly the case right now for many reasons: –
– Repayment vehicles have not met expectations such as endowments or pension performance
– No repayment vehicle has ever been taken out, or maybe lapsed along the way unknowingly
– The state pension age has gone up and is likely to do so again in the future. People relied on property values escalating, which recently they have done the reverse assumed sale of property would be the repayment vehicle, however hasn’t materialised
Although there seems to be an obvious need for innovative lending solutions for the elderly, the regulatory authorities have become very stringent about interest only lending. This is because, if no clear repayment vehicle was ever in place interest only mortgages can often prove to be impossible to repay.
Lenders have now put stringent criteria in place for borrowers, wherein borrowers must be able to prove to the companies’ satisfaction that their income during retirement will continue to be able to support the mortgage. Income from all sources must be evidenced in order to prove that repayment terms can be met during retirement. This can be a grey area however as certain lenders will have different rules on which forms of income will be acceptable. For instance some will accept rental income, a percentage of state benefits such as permanent invalidity or investment income.
The Halifax Retirement Home Plan was a good example of these varying rules. This scheme proved interest only lifetime mortgages can prove to be highly successful. Unfortunately, this scheme was pulled by the Halifax in August 2011, partly because they were unable to cope with the high demand and the lack of other interest only mortgage competition. Although this product is no longer available to new customers, existing plan holders can still maintain these plans & take further advances or even port them over to a new property.
Furthermore, there are additional lenders outside the mainstream mortgage market that can stretch the criteria to provide effective retirement mortgages. Stonehaven is a well-established equity release provider, and their Stonehaven Interest Select Plans are now an integral part of the interest only lifetime mortgage market for people over the age of 55. Stonehaven’s equity release mortgages are very similar to the now defunct Halifax Retirement Home Plan mortgage. Likewise, Stonehaven schemes are protected by the FSA, but furthermore they are also members of the Equity Release Council (formerly SHIP).
Apart from Stonehaven there are a few building societies that offer retirement mortgages similar but do have greater restrictions on their criteria such as New Life Mortgages.
As with any financial advice, a retirement mortgage can be a complicated and therefore independent mortgage advice should be obtained. Call 0800 678 5159 to speak to a retirement mortgage specialist.