New mortgages offering older borrowers options
OLDER homeowners are being given more borrowing options, as a building society launches a new range of retirement interest-only mortgages.
Leeds Building Society said it is entering the market, with the new deals initially being made available through brokers.
Interest-only mortgages allow people to make regular interest payments on a loan, without paying off the loan itself – but the capital must be eventually paid off.
Leeds’ new mortgages are being offered to borrowers aged 55 to 80.
The loans need to be repaid on a specified life event. This could be the sale of the property, moving into residential care – or the death of the borrower.
Borrowers will need to demonstrate that interest-only repayments are affordable throughout the term of the loan.
Leeds is offering three deals at fixed rates for two, three or five years.
The loans carry product fees of £999 and have rates of 3.34% for the two-year deal, 3.49% fixed for three years and 3.74% fixed for five years.
For borrowers who are able to pay off some of the capital during the initial period of the loan, there is some scope to do this – 10% capital repayments are allowed each year during the fixed-rate periods without incurring an early repayment charge. The maximum loan-to-value (LTV) on the deals is 55%.
The move comes after the Financial Conduct Authority (FCA) set out what constitutes a retirement interest-only mortgage earlier this year.
Richard Fearon, Leeds Building Society’s chief commercial officer, said there is a “clear customer need” for the products.
He continued: “We pride ourselves on being nimble in entering the market. This is a new, developing market that we would expect to grow.”
He said that, as people live for longer, they are following more flexible career patterns and spending longer in retirement.
Asked about past controversies over interest-only loans generally, which have included some people having no firm plan in place to pay their loan back, Mr Fearon said borrowers would need to have a “clear plan” in place for paying back the mortgage, and affordability stress tests will make sure borrowers would be able to make their payments at a higher rate if they had to. When asked who the deals could appeal to, he said this could include “older borrowers who reach the end of their existing product – they want to maintain a mortgage and they can afford it”.
Mr Fearon added: “Choosing a mortgage is always a highly personal decision and everyone’s individual circumstances and priorities are different, so it’s important consumers take the appropriate advice. For that reason these new mortgages are available only through brokers initially. We plan to launch retirement interest-only products through our direct mortgage team later this year.”
With an ageing population, other mortgage lenders have also been looking at widening the choices for older borrowers.
Nationwide Building Society lends to retirees up to the age of 85 and has also launched a Lifetime Mortgage equity release product.
The Post Office recently launched a new mortgage called Retirement Link, which allows people borrowing into retirement to choose an interest-only or a capital repayment plan. It will lend up to the age of 90 for the repayment option and up to the age of 80 for interest-only.
David Hollingworth, associate director at L&C Mortgages, said: “Retirement interest-only has the potential to offer older borrowers an alternative option to a traditional mortgage over a specified term or to lifetime mortgages.”