An ‘Interest-only Mortgages Update’ report published by UK Finance in 2020 highlighted that between 2021 and 2027 approximately 500,000 interest only mortgages equating to £70 billion of borrowing is expected to mature. A significant portion of these mortgages would have been taken out by borrowers in early 2000 many of whom are likely to be above the age of 55 at maturity.
Mortgage repayment options available for over 55s
A number or options are available to borrowers:
- refinance with a new residential regulated mortgage;
- repay current mortgage using savings eg ISA or pension withdrawals;
- move home to a smaller value property; or
- lifetime/equity release mortgage
For many their circumstances are likely to have changed from when they applied for their interest only mortgage and with the current tighter mortgage regulations applying for a new residential regulated mortgage may not be an option.
Given increasing life expectancy, rising care costs and the desire to help children onto the property ladder, using savings may not be financially viable.
For anyone considering downsizing or wishing to stay in their existing home a lifetime mortgage maybe the tool that provides them with the financial flexibility they need.
A ‘lifetime mortgage’ is a loan secured against a borrowers’ home. The borrower retains full legal ownership of the property and usually there are no monthly repayments to make as the loan, plus rolled-up interest, is repaid when the borrower passes away or goes into long-term care. Unlike normal mortgages a ‘lifetime mortgage’ does not have a fixed end date. Borrowers also have the option to pay part of or all of the monthly interest. The amount of mortgage a borrower will be eligible for will depend on facts such as their age (minimum age of 55), health, value of your home and existing outstanding mortgage.
Lifetime mortgages can provide borrowers with the financial flexibility to:
- stay in the existing family home;
- delay taking a tax free lump sum or regular income withdrawals and thereby allowing the pension fund to remain invested for longer;
- delay accessing savings such as ISAs;
- allow borrowers to gift during their lifetime rather than only on death; and
- introduce some tax planning during retirement.
If you are a financial adviser and would like to understand how lifetime mortgages can be used as a financial planning tool please contact the Kinnison team on our website or directly at our email address.
With ICAEW we are looking to host a case study webinar for financial advisers focusing on how lifetime mortgages can be used as a critical financial planning tool to allow clients additional financial flexibility and tax efficiency. The webinar is open to all financial advisers and so if you would be interested in attending please get in contact with us.
If you are currently looking for a residential mortgage or to refinance your existing mortgage and would like to discuss your personal position please contact the Kinnison team on our website or directly at our email address.
The above information is our understanding of the position as at 27 January 2021.
*The views expressed are the author’s and not ICAEW
Your home or property may be repossessed if you do not keep up repayments on a mortgage or any debt secured upon it.
As we offer a bespoke service, our fees will vary and are set out on our website, but we will always explain precisely what you will be charged before you proceed with an application.
The information contained within this document is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK. Kinnison Ltd is an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority. Kinnison Ltd. Registered office: 91 Wimpole Street, London, W1G 0EF, United Kingdom. Registered in England & Wales No: 09582749.