There are later-life borrowing options
BORROWING WHEN YOU ARE OLDER CAN HELP YOU ACHIEVE SOME GOALS, BUT VICKY SHAW EXPLAINS THERE ARE IMPORTANT FACTORS TO WEIGH UP WHEN DECIDING IF IT’S THE RIGHT OPTION
OLDER borrowers may have felt left out of the standard mortgage market in the past. But, amid wider changes to society, there are now various options available for over55s to choose from.
With house prices having hit record highs recently, some homeowners may have more equity than they realise.
The decision to borrow needs to be weighed up carefully, though, as there can be impacts for both the borrower and wider family members.
Nationwide launched its over-55s mortgage range in 2019, in response to a need that wasn’t being met, says Carlo Pileggi, their lead manager for mortgages.
“Older people who were looking to borrow felt excluded from the standard mortgage market,” he says, adding that Nationwide offers three types of deals – two “retirement” mortgages, as well as an equity release product called a “lifetime” mortgage. With the equity release lifetime mortgage, people don’t have to make monthly payments unless they choose to. The mortgage is usually repaid when the last borrower moves into longterm care or dies, and the property is sold. Any leftover money is passed down in the borrower’s will.
Looking at the two retirement mortgage products, borrowers can take out a deal where they only pay the interest on the loan – or a mortgage where they pay back both the interest and chunks of the original loan.
With the interest-only deal, because the borrower is only paying off the interest, this means the capital – or the original amount borrowed – will be repaid when the last borrower moves into long-term care or dies.
With the retirement capital and interest mortgage meanwhile, the mortgage will be fully paid off when the mortgage term ends.
Why are people considering borrowing in later life?
Carlo says: “Most people are doing a couple of things at the same time. Repaying a mortgage they might have already, for instance. Or perhaps they’ve got more expensive debts elsewhere that they want to repay.
“Over half of people are looking to do something to their house as well – improving it or adapting it, so it’s more suitable for their needs in older age.
“And then we have people who want to enjoy their retirement a bit more and they’re looking for that holiday of a lifetime, or the car they’ve always wanted.
“Gifting is also a really big factor, so around about a quarter of people are gifting in some way, and often that’s from parents to children or grandchildren, particularly for a deposit on
property.”
What impact has the pandemic had?
Carlo says there has recently been a considerable upswing in borrowers looking to gift money to family members. He adds: “During the pandemic we moved towards a video service. Our members can speak to an adviser through videolink. It’s been so positively received that we’re continuing that.”
Tips for those considering later-life borrowing or equity release
Carlo says: “We really encourage people to speak to family before and during (the process).
“We encourage people to bring children to the application, to the appointments as well, so everyone understands what’s going on.
“Go and speak to an adviser and make sure you understand what they are qualified to advise you on and what they’re going to talk to you about. Review your savings position and really have a think about what you want from your retirement and your priorities.”
What alternatives are there to borrowing?
Equity release and later-life borrowing may reduce the amounts that loved ones will inherit. There may also be impacts for receiving state benefits, so getting appropriate specialist advice is key.
Carlo says Nationwide’s advisers will talk to people about their circumstances and other potential options, such as savings, money from family members and any government grants.
Downsizing to a smaller property could also free up cash
Speak to an adviser and make sure you understand what they are qualified to advise you on and what they’re going to talk about
Where else can I go to find out more about equity release and later life borrowing?
The Government-backed MoneyHelper website has more information, as does industry body the Equity Release Council.
Jim Boyd, CEO of the Equity Release Council says: “Today’s market offers a growing choice of flexible products to suit different circumstances.
“Customers can choose to make monthly interest payments, guarantee a minimum inheritance to leave behind, or repay early, if they downsize in future or if family circumstances change.
“Equity release is typically a longterm financial commitment and expert advice is essential to help weigh up the benefits, costs, tax implications and potential alternatives.
“We always encourage people to involve family members in their decisions.”