Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his guidance to a reader below. If you have a question for our experts, email us at money@inews.co.uk.
Question: I have a house at the moment and I’m thinking of selling to move into a place with off-street parking. My house is worth £560,000, that will give us £360,000 equity towards the next house. The houses we are looking for would cost approximately £700,000. We need a mortgage of between £325,000 and £360,000, and our joint income is £72,000. What is the best option available, taking into account I am 60 and my wife is 55.
Answer: Borrowing into retirement is more common than many people think. Property prices have seen steady increases over the years, which generally means mortgage holders are having to raise larger funds to purchase and to reduce the impact this has on monthly mortgage payments mortgage terms have also increased.
Lenders have also adapted their criteria as we’re healthier, living longer and working beyond state pension age. As the state retirement age is creeping closer to 70, most lenders will accept that people are likely to be able to continue working until age 70. That means they can base their affordability calculations on earned income until then.
When thinking about borrowing into retirement you need to consider how much income you will have, how long you want to borrow the money for, and how you’ll ensure you’ve paid everything off by the end of the term.
If you need the term to go beyond age 70, lenders will typically base affordability on your potential pension or investment income only. There are a few lenders who will lend to age 85 and in a small number of cases to age 90.
Another consideration is whether you go for an interest-only basis (as opposed to traditional capital and interest repayment), to help reduce the impact on monthly payments. In this scenario the lender will require you to have a viable strategy for paying back the capital at the end of the lending period.
Other traditional routes for those aged 55 or over include taking out a retirement interest only (RIO) mortgage.
With an RIO mortgage, you only make interest payments, not capital payments. The amount you borrow is repaid when the property is sold after you die or enter long-term care with no prospects of returning to the residence.
An equity release mortgage is another option. You can live in the property but don’t make any monthly capital or interest payments. The interest is rolled up – i.e. added to the mortgage balance – and the lender only makes their money back when the property is sold, typically after you pass away or enter long-term care.
These are just a few options, so while you can go direct to a lender, some are accessible only through an intermediary. I would recommend speaking with a broker who will be able to review your circumstances and tailor the advice to your needs.