It's becoming easier for homeowners to get a mortgage that runs into retirement.
Options for homeowners whose mortgages stretch into retirement are increasing as providers relax their lending criteria.
The number of different retirement interest-only mortgages for older borrowers has soared nearly eight-fold in the past seven months from just five in July last year to 38.
The number of lenders who are active in the space has also increased from only two to 12 during the same period, including two providers who joined the sector in the past week, according to financial information group Moneyfacts.
At the same time, banks and building societies are becoming increasingly open to allowing borrowers to take out standard mortgages even if the terms run beyond the state pension age.
Homeowners who need a mortgage to run until they are aged between 80 and 84 now have a choice of 1,063 different deals, a significant turnaround from five years ago when no lender would offer a loan to someone in this age range.
Why is this happening?
A number of factors have driven the increase in choice of mortgages for older borrowers.
On the one hand, the Financial Conduct Authority reclassified retirement interest-only loans as standard mortgages in March last year.
It was a bid by the regulator to encourage more options for older borrowers after previously bracketing interest-only loans under equity release rules.
Lenders have also been scaling back their strict criteria on the age of borrowers, partly in response to the scrapping of the Default Retirement Age in 2014 and partly as they continue to loosen the strict criteria that they put in place following the global financial crisis.
Finally, in the face of intense competition across much of the mortgage market, banks and building societies are looking for new areas in which they can differentiate themselves.
Who does it affect?
The increase in products is great news for older borrowers who previously had very limited options if they were unable to fully repay their mortgage before they retired.
Under the terms of retirement interest-only mortgages, homeowners will simply continue to pay interest on their loan until they either die or move into a care home, at which point their property will be sold to repay the outstanding debt.
On the standard mortgage products, retired borrowers will make capital and interest payments each month until either their loan is repaid or their property is sold.
What’s the background?
There are now 225 mortgages that have a maximum age of 85-plus and 615 products that have no maximum age at all.
This is up from just 33 products for people aged over 85 in 2014, while there were no loans back then that did not have a maximum age.
There has also been a big increase in choice for people aged up to 75 years old, with 72% of all mortgages now open to this age group.
Darren Cook, finance expert at Moneyfacts, said: “The scaling back of strict criteria around the maximum age at the end of a mortgage must be a welcome relief for those borrowers who may have reached the end of their mortgage at 65 on an interest-only mortgage and have had few options available to turn to.”
Top 3 takeaways
- Options for homeowners whose mortgages stretch into retirement are increasing
- The number of different retirement interest-only mortgage products has soared nearly eight-fold in seven months
- Homeowners who need a standard mortgage with a term that will run until they are between 80 and 84 now have a choice of 1,063 different deals
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