Mortgages you can take to the grave

After years of penalising older borrowers, banks finally launch

OLDER borrowers are for the first time being offered mortgages that they can take to the grave.

In a move to help retired people stay in their homes, Hodge Lifetime has launched a new interest-only loan for over-55s which lets them keep borrowing until they die.

Nationwide, Britain’s biggest lender, has also revealed plans to launch an interestonly mortgage that will allow homeowners to borrow into later life — and experts say that more firms will soon follow suit.

The new loans are part of a lending revolution designed to help older borrowers who are unable to clear their mortgage before retiring, or who want to help family members climb on to the housing ladder.

Today, about 1.67 million people have an interest-only mortgage, a type of loan popular in the Nineties and 2000s as a cheaper way of borrowing.

Large numbers are predicted to reach the end of their loan term and face demands for cash that they haven’t got.

Earlier this month, Money Mail reported on the case of pensioners Len and Val Fitzgerald, both 76, who were refused an extension to their interest-only loan even though they had never missed a payment and could continue funding it.

To defuse this so-called interestonly timebomb, the City watchdog introduced new rules in March which allow banks to relax lending criteria for older borrowers.

In the past, banks required customers to prove they could, in theory, afford a more expensive repayment mortgage, where you pay back some of the capital as well as interest each month.

For many borrowers this was impossible because banks only allowed them a mortgage term up to their 65th or 70th birthday. As the repayments due were spread over such a short period, borrowers would have faced monthly bills for thousands of pounds, which they could not afford.

Under the new Financial Conduct Authority rules, customers may need to show only that they can meet interest-only repayments.

In addition, banks are increasing their lending age limits.

Currently, around one-third of building societies offer mortgages to people aged over 80, according to Moneyfacts. Some will even lend to customers aged up to 99.

The Hodge Lifetime deal, launched last week, is for borrowers aged 55 and over who have at least 40 pc equity in their home.

It allows them to continue making interest-only payments indefinitely. The capital is repaid only when the property is sold, or when the customer goes into care or dies.

Crucially, while some banks shy away from customers who rely on pension income, Hodge will accept applications from retired people. But you will need to meet its affordability checks and provide proof of a reliable income stream.

Hodge offers a five-year deal at 3.99pc and a two-year rate at 3.59 pc, plus a £995 fee. On a typical £150,000 loan, the monthly payments would be £498 or £449 respectively. At the end of the fixed term you are moved to Hodge’s standard variable rate, currently 4.45 pc.

Hodge also offers a two-year variable deal at 3.44pc. But typical payments of £429 will increase if interest rates rise.

Nationwide announced last week that it plans to offer a similar interest-only retirement deal, though details have not been revealed. Aldermore Bank has launched a range of mortgages targeted at homeowners aged over 55, including interestonly deals. It will let you borrow until age 99.

Interest-only customers must have at least 40 pc equity and pay a £999 fee.

Its two-year rate is 3.38pc and five-year rate 3.68pc. On a £150,000 loan, monthly repayments are £422 or £460 respectively.

Aldermore also offers a capital and repayment deal for older borrowers who may want to remortgage to fund retirement costs or offer help to family. Customers pay 25 pc as a down payment.

The two-year rate is 3.68pc and five-year rate 3.98pc, at a cost of £765 or £790 a month for a 150,000 loan.

Loughborough Building Society offers interest-only mortgages and repayment deals to the over-70s. You need 40pc equity and can borrow up to £350,000 for 25 years.

Its three-year discount rate is currently 3.19pc, or £399 a month interest-only on a £150,000 loan. The rate will remain at 1.9 percentage points below the building society’s standard variable rate, which is currently 5.09 pc. The 2.89pc capital repayment deal works out at £703 a month. The fee is £99. The rate will remain at 2.2 percentage points below the standard variable rate.

Family Building Society also recently increased its borrowing age limit, to 95.

Ray Boulger, senior mortgage technical manager of broker John Charcol, says: ‘We are in a new era of lending. These deals are a really positive thing for older customers as it offers them more choice.’