Borrowing into, or actually in-retirement is a contentious issue in 2016. We’ve had the credit crunch more than 7 years ago now, which saw as result the FCA demand a tightening on lending criteria. This had a consequential effect on post retirement mortgage market. It was understandable that the causes of the crash were remedied, however the knock on effect to other sectors of the mortgage market, may not be so.
Here, we discuss the effect on lenders of the FCA imposed Mortgage Market Review (MMR). We explain how specialist retirement mortgage products such as the Halifax Retirement Home Plan, Leeds Retirement plan and even equity release companies completely withdrew their products as a result of this ruling. Are comparative products now available that can run on a par, or even supersede interest only mortgage plans of the past?
Halifax Equity Release Schemes
The Halifax were a major lender to retirees prior to 2011, when it offered an interest only mortgage scheme based on income and property value over a fixed period which was usually 40 years. This scheme was very different to the lifetime mortgage schemes we have available today. The product was the Halifax Retirement Home Plan and was very popular for people over the age of 65, looking to raise a minimum of £15,000 secured on their main residence. The product grew exponentially in popularity, with a combination of accessibility to competitive mainstream low fixed & tracker rates & simple underwriting. It was probably for these reasons it was a victim of its own success and eventually lead to its demise in August 2011.
Currently, the only retirement mortgage most similar to the Halifax Retirement Home Plan would be the Hodge Retirement Mortgage, which is also based on income and property value. However, whereas Halifax would lend upto a generous 75% of the property value, Hodge’s Retirement Mortgage will only lend upto 50% loan-to-value. Caution and lower lending limits have resulted, again impacting on pensioners, but also those reaching retirement looking at repaying their interest only mortgages.
Can I Take Out a New Halifax Equity Release Plan?
With the Halifax Retirement Home Plan now being unavailable to new borrowers since 2011, the options with Halifax are now extremely limited at borrowing in retirement. Halifax will still lend upto a maximum age at the end of their residential mortgage term of 75 years for any retirement mortgage lending. Halifax currently offers no specific retirement mortgage product, nor do Leeds Building Society, as at the date of this article.
Currently, depending at what age (of the oldest) the mortgage starts at will affect the term of the mortgage. If borrowing starts prior to retirement, Halifax will require proof of income into retirement to ensure affordability of the monthly mortgage payments can be maintained. Consideration should also be paid towards the effect of the death of either party have on affordability issues aswell as a responsible lender.
For those with existing Halifax equity release schemes, there are still options available should people still need to move house or renegotiate their existing fixed, or discounted rate, should it subsequently expire. However, the decision making on the Halifax Home Retirement Mortgage plan are now dependent upon what Scottish Widows are offering as they now administer Halifax’s equity release schemes. Therefore, when a fixed, discounted or tracker rate expires its Scottish Widows that will offer any alternatives, with mixed results we hear.
For people moving house in retirement and holding a Halifax Retirement Home Plan scheme, it’s not as straight forward as when Halifax administered the plans. Although the plan is portable, a full review of affordability & income criteria will be undertaken by Scottish Widows. This will be based on post MMR lending terms and criteria, which many retirees are finding prohibitive and not conducive to being able to transfer to a new property. Under such circumstances alternatives will need to be found, which in today’s post retirement mortgage market is limited. As a company, Equity Release Supermarket are finding that some of its existing Halifax equity release clients are now looking to switch onto newer equity release schemes which can include both monthly repayments or even the new breed of voluntary repayment plans.
Do Leeds Building Society offer a Retirement Mortgage Still?
Back in 2012, Leeds still offered a retirement mortgage to people upto the age of 85. However, after Halifax withdrew their Retirement Home Plan pressure was piled onto the Leeds a one of the only options remaining to pensioners. Consequently, the pulled this Leeds pensioner mortgage scheme.
However, there has been comments from Leeds Building Society in early 2016 that they are again considering a mortgage in retirement, so we shall wait for further news on this!
What are the Alternatives to the Halifax Retirement Home Plan in 2016?
We are starting to hear that a relaxation of the post MMR rulings in the retirement mortgage sector are starting to filter through. We have some of the smaller, localised building societies who are increasing the maximum age of their mortgage terms such as Marsden, Dudley & Buckinghamshire Building Societies. This is welcome news, but this approach is needed on a more industrial scale if we are see solutions available for the hundreds of thousands of interest only mortgages approaching retirement that have no mortgage repayment vehicle in place.
The post retirement lending market has seen a gap developing between residential mortgages and equity release schemes. However, the equity release lender community has been innovating new lifetime mortgage products that can fulfil the immediate needs of repaying people needing a repayment solution for their interest only mortgages.
There are two schools of thought as to how people can fund a mortgage in retirement:
- By choosing to prove income as the main criteria in calculating how much can be borrowed with an interest only lifetime mortgage. This means that no future rate renewal will be needed & there is the security of having a lifetime fixed monthly interest rate.
- By choosing a newly devised Voluntary Repayment Plans where borrowers have NO income verification requirements and any repayment are classed as a partial repayment, but with no penalty. These schemes are now making large inroads into equity release advisers recommendations.
Therefore, whether retirees wish for the traditional discipline of monthly payments in controlling the balance, or greater flexibility by making ad-hoc or yearly partial repayments, the equity release industry currently has some excellent solutions for its clients to choose from. This is also reason why equity release is seeing such growth in its figures and new lenders are starting to seriously looking at developing new products, or possibly funding existing providers, who are looking to design new plans.
Providers of lifetime mortgages available on an interest only basis can be found in our comparison table. Here is a list of lenders that offer alternatives to the Halifax Retirement Home Plan.
Opportunities do exist in the post retirement lending market as the volume of retirees increases and so does the amount of equity held in their bricks and mortar. There will be greater demand for lifetime mortgage plans from the UK’s pensioners and lenders should understand this age group tend to be more credit worthy, responsible and have needs just like another generation. They should therefore not be penalised from a mortgage system that was at fault for irresponsible lending in other areas such as buy-to-let and introduce sensible retirement mortgage plans for today’s new generation of mortgagors.
Do Halifax offered equity release? …no…but there are many other lenders such as Aviva, Legal & General and Hodge Lifetime that do offer alternative lifetime mortgage solutions.
For information on whether a lifetime mortgage is available and to benefit from a FREE initial consultation, use the Equity Release Supermarket Contact Form or visit our Find an Adviser page where Equity Release Supermarket specialists local to you are available to explain your range of options.
We're also available by contacting Freephone number 0800 802 1051 or email [email protected].