The tabloids are currently awash with articles proclaiming the death knell for the interest only mortgage. We only heard a few days ago the Nationwide are just one of the high street mortgage lenders in declaring themselves out of the interest only mortgage market.
But are these lenders missing a trick?
There is a potentially huge retirement mortgage market out there; a society that has grown up on a life of managing debt. They have paid off their mortgage, loans and credit cards during their lives which has created a culture of good financial management and has enabled them to build a significant volume of equity in their property.
Lenders need to understand more about the needs and demands of our retired population: -
- Pensioners have fixed incomes which will usually be incremented each year
- Most have a good credit history with track record to prove this
- The older population tend to manage credit better & have not harnessed the ‘buy now, pay later’ mentality of today’s younger generation
- They cannot be made redundant, nor lose income due to sickness or injury
We know in business, where one dares to tread another will be quick to follow and New Life Mortgages have done just that with their newly launched Over 65’s Retirement Mortgage.
Who are New Life Mortgages?
New Life Mortgages have been offering equity release schemes since 2003 and their innovative ideas were behind the first ever buy-to-let equity release plan and 2nd home lifetime mortgage schemes.
Having been assessing the market for their latest launch, New Life has evidenced the potential behind the vacuum left by the withdrawal of products such as the Halifax Retirement Home Plan in 2011.
The 65+ Retirement Mortgage
The newlife mortgages 65+ mortgage is aimed at homeowners with a minimum age of 65 who are looking to raise a tax free lump sum secured against their property and who wish to remain in situ for the foreseeable future. The important aspect of this plan is the term – there is no upper age limit and the applicants can take it out over a 25 year term, possibly longer with lender approval.
Available on an interest only or capital & repayment basis, the 65+ mortgage has an interest rate of 5.74% variable. Therefore, applying for a £50,000 mortgage on interest only basis would cost £239pm.
Early repayment charges (ERC’s) are favourable also which isn’t the norm on most equity release or interest only lifetime mortgage schemes. With a penalty of 3% in the first year only and none thereafter, the 65+ mortgage could certainly could suit those who are unable to sell their properties in the short term but still need cash funds.
How much will New Life Lend?
Standard mortgage lending criteria applies and affordability needs to be evidenced to determine how much can be borrowed. A common sense approach, and & possibly one that most lenders in the current environment could benefit from.
The formula for calculating maximum borrowings are based on income of 4x the first income plus 2.5x the second, or simply 3.75x joint income, whichever provides the highest release for the client. Even still the loan must prove affordable when viewed in conjunction with other household expenditures. Usual credit checks are made and references requested if necessary.
The overall maximum amount that New Life Mortgages will lend is £350,000, although again this can be reviewed subject to individual criteria. One caveat though is that the maximum amount that can be borrowed is 50% of the property value & there must be £150,000 equity remaining after the mortgage is granted. Therefore, the over 65’s mortgage may not fit all criteria; however it is hopefully a move in the right direction for pensioner mortgages.
The 65+ mortgage is available on a purchase or remortgage basis. If remortgaging then New Life Mortgages are currently offering a FREE legal fees package on every application.
If you wish to check eligibility or request a quote on the New Life Mortgages 65+ Mortgage please call the Equity Release Supermarket team on 0800 678 5159.