What are the mortgage options for borrowers in later life?
With some people facing the prospect of borrowing into their retirement, a banking expert explains some of the options available.
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Following years of stretched finances, some people are borrowing mortgages over longer terms.
This may leave some people with the prospect of carrying a mortgage into their later years – and perhaps even into their retirement.
According to figures from UK Finance, the number of new loans handed to older borrowers aged over 55 was 8.3% higher in the second quarter of 2024 than a year earlier.
Some lenders will offer products specifically aimed at older borrowers.
Katie Brain, a banking expert at financial information business Defaqto explains: “Borrowing against a property as you get older can be more complex but there are options out there and we’re seeing more products coming to the market as there is a growing demand for them.”
One option for older borrowers is retirement interest-only (RIO) mortgages.
These products allow borrowers to pay just the monthly amounts of interest throughout the term until either the death of the last remaining borrower or when the last remaining borrower moves into long-term care. When one of these events occurs, the mortgage ends and the amount outstanding must be repaid in full.
Borrowers will need to consider how they’ll be able to continue making interest payments throughout the duration of the mortgage.
Those with a guaranteed income, such as from a salary-based pension or a retirement annuity, may find that a RIO mortgage is suitable for them.
Brain says that, looking across the market, rates for RIO mortgages start at around 5-6%.
She says another option for those needing to borrow into retirement, but who may not have a regular income or one high enough to secure a RIO, is a lifetime mortgage.
These are provided by specialist lenders and monthly payments are not required.
Lifetime mortgages allow people to release cash from their home without needing to move out and people can receive their funds as a lump or draw down further funds as and when they are needed.
Again, the mortgage is repayable when borrowers die or move into long-term care.
Where no monthly payments are made, the interest on the mortgage is rolled up and added to the balance.
This means that the amount owed at the end of the mortgage may be more than what was borrowed, although many lenders allow interest payments if borrowers wish.
Brain says: “In terms of rates, we’re seeing slightly higher rates than the best standard mortgages but broadly speaking they are the same as some mainstream mortgage rates.
“We have seen rates much lower than this in the past for both RIO and lifetime mortgages too, so hopefully if we see the (Bank of England) base rate come down further then we’ll see more competitive rates for older borrowers as well.”
Borrowing into later life can affect the amount of inheritance left behind, so people weighing up their options may want to consider discussing these with family members as well as taking financial advice.
There may also be other alternatives to consider, such as downsizing into a smaller property, which could also help to keep household bills down.