Big freeze ahead for cash poor over-55s

THE OVER-55S are being frozen out of the mortgage market as lenders make it harder to borrow money in later life, tightening criteria and clamping down on those who have withdrawn money under pension freedom reforms.

Many could be forced to sell their homes because they cannot find any other way of raising the cash they need, according to research from retirement mortgage specialist Responsible Life, highlighted in the Daily Express last week.

The problem may worsen as growing numbers near retirement with unpaid mortgages and other debts, or lose their jobs in the pandemic. If you own your home and your finances are stretched, you have several options to raise the money you need to pay down outstanding debts and make ends meet...

DOWNSIZING

One way to raise cash is to sell your home and downsize to somewhere smaller and cheaper to run.

The drawback is that estate agency fees, conveyancing bills and removals costs will eat into the money you generate from the sale, while until recently you also had to pay stamp duty on your new purchase.

Ben Johnston, director of property app Houso, said many downsizers are waking up to the opportunity offered by Chancellor Rishi Sunak’s stamp duty holiday: “This saves them a maximum £15,000 on purchases up to £500,000, reducing overall costs.”

North London estate agent Jeremy Leaf said the holiday has another benefit: “Downsizers are seeing more demand for their homes, as buyers seek to take advantage before it ends on March 31, 2021.”

If you are thinking of downsizing, start the ball rolling now to make sure you complete the move before the stamp duty holiday ends.

MORTGAGES

A number of mortgage lenders, particularly smaller building societies, offer mortgage terms running into your 70s and 80s but qualifying for them can be a challenge.

Barclays and Natwest may lend to age 70, HSBC to 80 and Santander to 85. Nationwide may also lend to age 85 and will consider an even higher upper age limit of 95 for existing mortgage customers.

However, in every case you have to demonstrate that you can afford to meet your monthly repayments from your pension, investments or other sources of income.

Canada Life technical director Andrew Tully said this can be hard for those who have used 2015’s pension freedom reforms to shift retirement savings into drawdown: “Drawdown does not give you a guaranteed income stream, unlike an annuity, and many lenders will not accept it as proof of mortgage affordability.”

People in this position now have another option, a new type of product known as the retirement interest-only (RIO) mortgage.

Stephen Lowe, director at retirement specialist Just Group, said this allows you to take a mortgage but only repay the interest: “The capital is eventually repaid from selling your home, typically after you and your partner die or move into long-term care.”

This reduces monthly payments to make the mortgage more affordable. Lowe said: “However, you must still show that you can afford to cover the interest payments for the rest of your life.”

Another danger is that interest rates will rise in the future and drive up your monthly payments. Hodge Lifetime’s specialist 50+ Mortgage is also an option.

EQUITY RELEASE

Homeowners will find it easier to qualify for an equity release plan, also known as a lifetime mortgage, because these do not have any affordability criteria at all.

Andrew Morris, senior equity release adviser at Age Partnership, said that is because you do not have to make any capital or interest repayments (although you can elect to do so on some plans): “Instead, the interest rolls up and is repaid along with the capital when your home is sold after you die or go into care.”

He added: “You can take out a single lump sum or draw regular amounts, as and when you need them.”

You can take out equity release from age 55 but will release more money if you wait until you are older, and your life expectancy is lower.

“The lender can be more generous as it should recoup its money quicker,” Morris said.

‘Drawdown does not give you a guaranteed income stream and many lenders will not accept it’

OTHER OPTIONS

You can unlock the full value of your property by selling up and renting but then you have to cover your ongoing rental costs for life. Morris said: “We discuss all of these options with clients, including finding part-time work, taking in a lodger or getting a gift or loan from family.”

Alternatively, look to cut your everyday spending by finding cheaper utility bills and car insurance, or cutting down on luxuries. “Make sure you are claiming all the state benefits you are entitled to,” Morris added.

Tully said you could take a lump sum from your retirement funds under pension freedoms but withdrawals will be added to your income that year and subject to tax.

Lowe said people aged 50 and over can get free, independent, impartial retirement guidance from the Government’s Pension Wise service.