‘Life mortgages’ for retired
“MORTGAGES for life” may be about to become available for the first time as financial regulators prepare to allow retired home owners to take out loans that can be repaid after death.
Under radical plans proposed by the Financial Conduct Authority, older borrowers will be able to carry on paying their mortgage until they die.
At present, banks are forbidden to give mortgages to borrowers who do not have a clear means of repaying the loan. But the FCA wants to change the rules to allow loans to be repaid by selling the property once the owner dies or moves into residential care. This is provided that customers can still afford to pay off the interest element of the mortgage each month.
The current rules are forcing many older borrowers, who would be capable of affording “interest-only” mortgage repayments, into costly equity release plans that mean their capital is eroded over time, the FCA said.
It comes as thousands of interestonly loans, which peaked in popularity in the Eighties and Nineties, are about to mature, with borrowers approaching retirement. Many of these borrowers are likely to be concerned about their
options and may be forced to choose between downsizing to pay off their mortgage – or doing equity release.
Last year, Andrew Bailey, the FCA chief executive, raised caution over equity release mortgages, many of which come with complicated – and sometimes expensive – guarantees, he said.
Equity release plans, also known as “lifetime mortgages”, involve compounding the interest over many years, which can hugely inflate the cost of the loan.
The FCA’S latest proposals would offer a cheaper alternative, whereby pensioners who cannot afford to clear their capital debt can continue to pay only the interest, each month, on an indefinite basis.
Older borrowers choosing this option may also find themselves better able to bequeath property wealth, as unlike with equity release, all the equity they have built up in their home will remain theirs.
The portion of the home not yet owned by the borrower will be taken by the lender at the end of the mortgage, which may well be when they die.
Ray Boulger, a mortgage analyst at John Charcol, said the return of interest-only mortgages for the elderly would mean more choice and better rates.
“It will widen the choice for consumers quite considerably because there are some lenders who would like to offer this product at the moment but don’t feel they can,” he said.
Older borrowers are currently restricted to equity release, or a small number of lenders who are unlikely to offer them the best rates, he added.
Data recently revealed that the property wealth of over-65s in Britain has surpassed £1trillion for the first time.
John Eastgate, sales director at One Savings bank, a specialist lender, said: “This is to be welcomed. You have a very creditworthy older population being denied access to perfectly viable lending conditions.”