Types of mortgages available for over 50s
There are several types of mortgage options available for people over 50. Which one you choose will depend on your financial circumstances and your future plans. These are some of the most common mortgage options for over 50s:
Traditional mortgages
The most common type of mortgage for over 50s is a standard residential mortgage, where you take a mortgage loan out over a set term and once you have paid the mortgage loan off, you own the property.
Equity release
These are usually available to homeowners aged over 55 and rather than providing you with a mortgage for a property, these types of mortgages involve lenders providing you with a loan against the equity in your home.
Specialist mortgages for retirees
With specialist mortgages such as retirement interest-only, you only pay the interest off on the mortgage and the capital is paid off when you die or go into long-term care. This can help to keep your monthly mortgage payments considerably lower than a capital repayment mortgage.
Understanding the different mortgage options
To help decide which mortgage option is right for you, here’s a more detailed explanation of the options and the circumstances in which they may be suitable:
Standard residential mortgages
If you are looking to remortgage your existing home or buy a new one, a standard residential mortgage may be the most suitable. These include option types like fixed rate, variable and tracker mortgages and you have the option between a repayment mortgage and interest-only. There are many of these products available to applicants under 60, but those over 60 and 70 will have some limited options available. Our experienced brokers will advise on the available solutions.
Lifetime mortgages
Lifetime mortgages are a type of equity release product. The majority of lenders only offer lifetime mortgages to applicants aged over 55 but there are some products on the market for 50–54-year-olds. The purpose of a lifetime mortgage is to release the equity in the property, and the lender provides you with a loan against the value of your home. Interest is applied on the loan for the time that you continue to live in it. The loan is then paid off by selling the house when you pass away or move into long-term care. If you are planning to leave inheritance to relatives, this will considerably reduce the amount you leave.
Retirement interest-only
Once people retire and no longer have a salary as an income, their pension might not stretch to cover the monthly mortgage payments on a standard mortgage. One option is to take out a retirement interest-only mortgage, where you will only pay the interest on the mortgage each month. The capital is then paid off to the lender when the property is sold, when the homeowner either passes away or moves into long-term care.
Impact of retirement on mortgage eligibility and repayment terms
For many people, retiring means a drop in monthly income, going from receiving a salary to taking their state pension and any private pensions
One of the main criteria that lenders use when assessing mortgage applications is affordability. This usually requires proof of income through payslips but for retired applicants, the affordability assessment will be different. The lender will assess your affordability based on your pensions and any other income from investments.
To balance the risk of providing mortgage loans to older applicants, lenders will usually have eligibility criteria such as a maximum age, or a maximum length of mortgage term depending on the age of the applicant. For example, some lenders will require that the mortgage term ends by age 75.
Another factor that lenders will consider is the Loan to Value (LTV). Lenders may only approve an LTV of up to 55% for older applicants, whereas under 50s can be approved with a much higher LTV. Having a larger amount of equity in your property will help you to access products for lower LTV rates and more advantageous deals.
With the average age of first-time buyers increasing and a growing number of people opting for longer mortgage terms, such as over 30 or 35 years, it is not uncommon for people to still have a mortgage when they retire. For this reason, more suitable mortgage products have become available for people over 50.
The eligibility criteria for products such as retirement interest-only mortgages help to make mortgage repayments more affordable for borrowers who no longer have a salary.
How lenders assess over 50s applicants
The assessment criteria differ depending on the product type but for a standard residential mortgage, the main factors used to assess eligibility for over 50s are:
- Income. Either through salary or pension income and any additional income from investments or rental property.
- Age at the end of the term. Many lenders will require the mortgage term to end before the applicant turns 70.
- Loan to Value. Lenders usually require a lower LTV for older applicants, such as a maximum of 60%.
- Credit history. Credit checks will be conducted as part of the assessment, with a good credit score generally required.
For retirement interest-only products, lenders usually require applicants to be aged over 50 or over 55. The criteria that apply to standard mortgages, such as income / affordability, credit score and LTV will also be assessed.
Considerations when applying for a mortgage after retirement
When you are deciding which type of mortgage to apply for after retirement, these are some of the factors to consider:
- How will the mortgage impact your retirement plans and lifestyle affordability?
- Do you want to leave your property as inheritance?
- Would downsizing your property be a better option to reduce or pay off your mortgage?
