Retired? Don’t want to downsize but can’t remortgage?

The English are so wedded to homeownership that the statement for a man's house is his castle was enshrined in common law in 1628 by Sir Edward Coke.

Retired? Don’t want to downsize but can’t remortgage?

Therefore, it is not hugely difficult to understand why someone might choose to take out an interest-only mortgage if it offered the opportunity to own their dream home at an affordable rate.

So I read with interest the news that Hodge Lifetime has launched a lifetime interest-only mortgage for borrowers in or heading into retirement with 50% equity in their property who want to refinance rather than downsize.

Obviously, the most sensible course of action would be to have a repayment vehicle in place but 77% of all interest-only mortgages have no declared repayment vehicle.

And, with 34% of regulated mortgage balances being held on an interest-only basis this is no small problem – especially for those people who are approaching retirement and find themselves unable to remortgage.

This has the potential to be a significant issue for the UK property market so Hodge Lifetime has launched its “retirement mortgage” which is designed to fill the gap between traditional residential mortgage lending and equity release products.

Essentially, it allows borrowers in or heading into retirement with 50% equity in their property to refinance to an interest-only lifetime loan that only needs to be repaid if the borrower dies or moves into long term care.

While it is likely to appeal to some interest-only mortgage borrowers it will also appeal to those who may otherwise have been forced to downsize to repay their mortgage or simply those who – while enjoying a good pension income – need a cash lump sum.

These are not necessarily traditional asset-rich, cash-poor equity release customers but people who are facing different issues.

Having exclusively trialled the new plan prior to full launch, the retirement specialist Age Partnership has handled many enquiries from people who have found that ordinary lender simply doesn’t want to lend to them because of their age.

Entering retirement owing money on a mortgage is obviously not an ideal situation but it is a reality for many people so a product which helps them to manage this issue is a step forward.

Indeed, not only is it a huge positive for consumers but it also means that people can avoid one of the biggest criticisms aimed at equity release – compound interest.

The simple fact is that the younger a person is when they take out a traditional lifetime mortgage, the longer the interest has to accumulate and the more they or their families will pay back.

This product neatly deals with this issue by allowing the borrower to pay the interest until they reach the age of 80 at which point they can continue paying the interest monthly, or begin rolling-up against the loan.

Therefore, I can see a situation whereby someone might take out the Hodge product when they retire and eventually switch this to a full equity release loan or downsize and repay the loan when they reach late retirement.

This is a much needed innovation which will help more people to find the best possible solution for their own particular financial situation.

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Categories: Analysis

About Author

Simon Chalk

Simon Chalk is the technical manager of equity release at Age Partnership – the retirement specialists. Simon, a four times national award winner for equity release advice, sits on the Adviser Standards Working Group of the Equity Release Council.