More older adults are turning to mortgages which run into retirement to manage their finances, new data shows.
According to the latest UK Finance Later Life Lending report, a total of 33,130 new mortgages were taken out by borrowers aged 55 and above between April and June this year, an increase of 0.49% year on year. The total value of this lending reached £5.2 billion, up 3% compared to the same period last year.
This suggests that while the number of borrowers is only slightly up, the average loan size is increasing, perhaps due to rising property values or borrowers needing greater financial flexibility in later life.
Lenders are increasingly prepared to lend beyond the age of 75, depending on individual circumstances, and some don’t impose a maximum age limit at all. When assessing affordability criteria, they will look at earned income up to retirement age, and then at retirement income from pensions or other sources, such as rental income or investments.
Earlier this year, the Financial Conduct Authority (FCA) said that people borrowing into retirement could benefit from further possible changes to mortgage rules. Its Mortgage Market Discussion Paper, which closes to consultation on 19 September, will look at ways to make it easier for homeowners to manage mortgages into retirement.
Lifetime mortgages see sharp increase
There were 5,830 new lifetime mortgages agreed between April and June this year, UK Finance’s data shows, an increase of 3.7% compared to the same quarter last year. Lifetime mortgages are a type of scheme that allows homeowners to unlock some of the value tied up in their property without having to move or make monthly repayments. The interest and capital are only repaid when the homeowner dies or moves into long-term care and the property is sold. The total value of this lending was £520 million, up by a significant 10.6%.
In contrast, Retirement Interest-Only (RIO) mortgages – which allow borrowers to pay just the interest on the loan, with the capital repaid when the home is sold – saw a slight decline. Just 305 new RIO mortgages were taken out between April and June this year, down 2.6% from last year. The value of this lending was £25 million, which represents a 10.7% drop.
While RIO mortgages remain a niche product, they can still be a useful option for some older borrowers seeking to manage their finances more flexibly in retirement.
