Aldermore bank is the latest lender to give older borrowers the chance to take out a home loan or remortgage in later life.
A mortgage you can have until you are 99 years old was launched this week. It’s the latest in a string of home loans aimed at satisfying the growing demand for “later life” borrowing, with deals that last well into retirement.
Challenger bank Aldermore says it will now let people carry on holding one of its mortgages until they are 99, and its maximum age for a new borrower applying for a home loan is an impressive 85.
Its announcement came on the same day that Family building society increased its maximum age at the end of the mortgage term to 95, which means a 90-year-old could take out a home loan lasting five years.
But what are the pros and cons of these deals and would you still want to be paying off your mortgage when you are in your 90s?
The background
Many mainstream lenders have traditionally had a cut-off age of 70 or 75. But high house prices, student debt and a rise in the age at which couples have children all mean that many people are buying a home later and opting for a term that is longer than the conventional 25 years. Plus, more people are working longer.
There are also lots of reasons why an older person might want to remortgage or take on a deal after years of being mortgage-free. For example, they may want to release some equity from their home for their children or grandchildren or to finance a better quality of life. “It’s a massively growing market,” says Andrew Montlake at mortgage broker Coreco.
The deals
Earlier this month, Loughborough building societyscrapped the upper age limit on its mortgages, so borrowers can take out a home loan for up to 25 years regardless of their age at the time of application. There are now at least 15 building societies with no age limit, including Bath, Cambridge, Harpenden, Ipswich, Leek United, Marsden and Saffron.
Meanwhile, others are launching deals designed for older people, some of which are available on an interest-only basis. Aldermore’s mortgages, which start at interest rates of 3.38%, are aimed at applicants aged 55 to 85 who wish to access the equity in their home without having to sell it. The upper age limit of 99 means a 55-year-old could take out a 44-year deal, while an 85-year-old could get a 14-year home loan.
These deals could throw a lifeline to people who have an interest-only mortgage coming to an end. Borrowers can use the sale of their home as their repayment strategy if they want one of these loans on an interest-only basis, but they must have a minimum of 40% equity in their property.
This week, Family (part of Surrey-based National Counties building society) significantly increased the maximum term of its deals, which means a 60-year-old can now have a 35-year mortgage and an 80-year-old a 15-year mortgage. These deals must be taken out on a repayment or “part and part” basis. With the latter option, only a maximum of 50% of the loan can be interest-only.
Meanwhile, Post Office Money offers a mortgage called Retirement Link, whereby it will lend up to the age of 90 if you select the repayment option, and up to 80 for interest-only. The latter is only available to those who are mortgage-free.
How much could someone borrow?
Aldermore gives the example of an 80-year-old widow, whose £495,000 house is mortgage-free. She is not keen on going down the equity release route and is looking to gift money to her grandchildren. She receives a total pension income of £29,000 a year. Based on a 15-year interest-only loan, Aldermore would be prepared to lend her up to £130,210 at an initial cost of£435 a month.
What are the downsides?
The biggest potential pitfalls relate to people’s health and pensions, says Montlake. If it involves a couple, what will happen to the household pension income if one of them dies? And what if someone agrees they will eventually sell their property but changes their mind later on?
Montlake says his advice to those considering later-life deals is: “Definitely take your time and get proper professional advice on the options out there.”
Belvoir Liverpool Central sales team can be contacted on 0151 231 1613 option 1 or email us at liverpoolcentral.sales@belvoir.co.uk
