The current retiring generation have seen fantastic property growth through most of their lifetime resulting in many with property wealth larger than their retirement savings; as we all continue to live longer the idea many may have previously had of reaching retirement and then downsizing is disappearing.

Meanwhile, improved health and the growth of flexible working are providing individuals with more choice about working longer or using their property wealth to supplement their pension income.

As a result of high sales of interest-only mortgages a few decades ago, large numbers of individuals are now reaching retirement with these mortgages outstanding and no means of repaying outside of selling their property.

To meet these societal shifts the regulator has asked lenders to come up with new solutions to support those mortgagors who are in a position to do so in maintaining their mortgages and continuing to make interest-only payments.

Ensuring a high standard

However, the Regulator is also very keen to use regulation to ensure that the marketplace for these solutions and the advice provided by financial advisers is of a very high standard. Where applicants are identified as vulnerable, higher levels of oversight are used to ensure appropriate advice standards are maintained.   

From the bank and mortgage provider perspective, rate and margin pressures in the current competitive mortgage market have led lenders to offer mortgages that might once have been considered niche. They have softened their lending criteria, reflecting their wish to take on more manageable and profitable risks, and this has seen them look to all parts of society to offer solutions, especially to this group of older borrowers.  

The specialist retirement interest-only mortgage & lifetime mortgage lenders recognise that consumers are seeing the release of equity within their property to fund later life expenditure as a more accepted and mainstream area of lending. The combination of low rates and highly flexible products has seen demand increase substantially.

Understanding intention and capacity

However, lenders want to understand the intention and capacity of their customers to maintain a mortgage payment up to and into retirement. They will look to base borrowing on incomes that are sustainable and realistic. A customer who indicates that they intend to work past what has been considered ‘traditional’ retirement age will be asked if that is realistic in terms of their profession. Where it is not, the lender will ask for further details of their pension provision and ask more questions surrounding retirement plans.

Lenders have expanded underwriting to better understand the income mix that an older borrower may have up to and into retirement, and how this can be used to support a mortgage without adversely affecting their risk strategy. They are generally more willing to consider mortgage terms that extend past the traditional 60-65 accepted retirement date, where incomes are there to support an interest only payment.

Highly flexible options

Where income is not available, or where an applicant wants to borrow without having a monthly commitment, lenders have developed highly flexible Lifetime mortgages that offer highly competitive rates that can be tailored to a borrower’s individual requirements. 

If you have an interest-only mortgage and would like to talk to us about your options, we’d be happy to help you find a suitable solution.

For more information on how we can help advise you on any other mortgage requirements, contact our mortgage team.

Find out more by reading our latest overview: Mortgage advice: how we can help you

Posted by Steve Butler

Topics: Insights & Advice, financial planning, Mortgages, Investing

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