With an ageing population, the UK is seeing rising demand for mortgages for over 60s. The ONS predicts that by 2050, one in four people in the UK will be aged 65 and over.
Many retirees take up a new sport, go on cruises and enjoy hobbies they didn’t have time for when working. This lifestyle can be expensive, and older homeowners often have their wealth tied up in assets.
One way around this is equity release, a type of mortgage for the over 60s that allows you to release money from your house tax-free.
Mortgages for over 60s - what are the options?
The maximum age for a mortgage was traditionally 65. However, times are changing. We are marrying later, finding it harder to buy our first property, and face financial insecurity that may force us to borrow later in life.
The minimum age for an equity release mortgage is 55 years which could be a good option for those who want to get their children on the property ladder, pay university fees, or put aside money for retirement.
Older borrowers are often in a stronger financial position than the younger age group. They are further into their career and often earn more than younger borrowers. Their children may have left home, and they may have already come into a family inheritance.
In a recent case, a bank was forced to pay £500 in compensation to a married couple in their 40s, after withdrawing approval for an 18-year interest-only mortgage on the grounds that the husband would be over 65 when the term was complete. The Financial Ombudsman Service (FOS) ruled that the bank had relied on “untested assumptions, stereotypes or generalisations in respect of age.”
While it can be more difficult to get traditional mortgages for over 60s, there is no maximum age limit for a lifetime mortgage. An equity release mortgage could be a great way to boost your retirement income and the minimum age required is 55.
Each lender is likely to have its own rules on lending. For example, terms may be shorter and monthly repayments higher. Some lenders may have specific products aimed at older borrowers.
Paula Higgins, chief executive of the Homeowners Alliance, said:
“Many lenders have increased their maximum age on mortgages in recent years with building societies leading the way. Smaller building societies tend to take a more bespoke approach to borrowers, and are therefore more willing to consider alternative incomes post-retirement”.
“There are many options for older people to get access to funds, including downsizing, equity release and remortgaging. It’s important to get good financial advice”.
What is an equity release mortgage?
Equity release is a form of remortgaging that allows homeowners aged over 55 to release equity from their homes by taking out a tax-free cash lump sum. An equity release mortgage can help you put aside funds for retirement or buy a second home.
There are two categories of equity release: the lifetime mortgage and the home reversion scheme.
Lifetime mortgages have a minimum age requirement of 55. The mortgage is repaid upon your death or when you enter long-term care, often through the sale of the house.
A lifetime mortgage comes with a fixed interest rate. Instead of making regular repayments, you only pay off the ‘rolled up’ debt when the property is sold. An adviser can help explain equity release interest rates.
Lifetime mortgages from lenders approved by the Equity Release Council come with a no-negative-equity guarantee, which means that even if house prices drop you will never owe more than the value of your home.
- Try our free equity release calculator with no obligation to see how much tax-free cash you could release from your home.
Home reversion schemes have a minimum age requirement of 65. You sell part or all of your home for below the market rate, but continue to live there rent free. When you die or enter long-term care, the lender sells the property.
Bear in mind that taking money out of your property now may reduce the value of your estate and could affect your entitlement to means-tested benefits. Always seek equity release advice before making a decision. A qualified adviser can explain how equity release works and offer guidance based on your circumstances.
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Information correct at date of publication.