Scottish Building Society

While the Pension Freedoms introduced in 2015 have brought more financial planning options in retirement, the biggest asset in retirement pots is often your home. Scottish Building Society already has over a decade of specialist experience in the retirement mortgage market with their interest-only Lifetime Mortgage, which allowed borrowers over the age of 65 to free-up cash tied up in their home.

So when the Financial Conduct Authority (FCA) introduced proposals to improve access to mortgage borrowing for older people, including those with maturing interest-only mortgages without sufficient funds to repay them, SBS were already ahead of the curve.

With their new Retirement Interest-Only (RIO) mortgage, which replaces their Lifetime Mortgage, members can borrow against the equity in their home and by paying the interest each month, they can ensure the mortgage balance doesn’t increase - so when the property is eventually sold, the mortgage is repaid and some equity remains.

The RIO mortgage is available to homeowners in Scotland aged 60 and over who have a reliable monthly income in retirement. The Society offers up to 50% of the value of the property as a cash lump sum and unlike standard interest-only mortgages, there is no fixed end date for settlement of the loan and capital is only repaid after death or on the sale of the house. There is no maximum age limit.

Paul Alexander, Head of Business Development, said: ‘This is good news for those who have perhaps reached the end of their standard interest-only mortgage but have a shortfall in savings to repay the loan, and provides an alternative to a house sale or a loan that requires regular capital repayments.

‘It also provides an attractive option for managing intergenerational wealth where older people could help younger members of the family buy their first home, for example. Where the applicants have a secure income and meet our affordability criteria, a Retirement Interest-Only mortgage may be a more suitable option than equity release.’

CASE STUDY

Interest-only mortgage helped the Morgans plug endowment shortfall in retirement John Morgan (68) and his wife Linda Anne were facing a dilemma when it became apparent three years ago that they would be unable to repay the mortgage on their Dumfries home because of a shortfall in their endowment policies. They had only eight years to plug the gap, or be left in the red with their current mortgage provider which would mean that they would be faced with the daunting prospect of selling up and downsizing.

‘This is a problem facing many pensioners and it is only going to get worse for future generations,’ said Mr Morgan, a retired accountant who also had a long career in local government.

After discussing their options with the family they turned to Scottish Building Society for help. They agreed to borrow 35% of the value of their townhouse with an interest-only mortgage. It meant they could eradicate the debt with their previous lender and pay interest only on the loan, the equivalent of an affordable rent, for the rest of their lives.

‘It was an excellent solution for us and gives us both stability and flexibility. We have since moved to the central belt to be closer to our daughters and grandchildren and have transferred the mortgage to our new home. When we die the original loan will be repaid out of the proceeds of the sale of our property, with the remainder passed on to our children.’

Established in 1848, Scottish Building Society is Scotland’s only independent building society. The Society has over 50 branches and local agency offices in communities across Scotland.

CONTACT

For more information: 0345 600 4085 or www.scottishbs.co.uk