Due to changes made by the Financial Conduct Authority (FCA) in the regulation of mortgages that came into force on the 26th April 2014 under what was called the Mortgage Market Review (MMR), we are seeing a significant number of clients that are in or approaching retirement and are unable to get a new mortgage on the conventional mortgage market. This is largely down to the affordability assessment of the mortgage moving from the adviser to the lender. In addition to this, the lender is applying much more strenuous affordability criteria, even if the potential client has good income and an excellent credit history.
More and more people are entering retirement with an outstanding mortgage balance and this happens for many reasons, some of which are endowment shortfalls, divorce, relocation to a more expensive area or even having received poor advice in the past.
Despite having an excellent credit history and guaranteed pension income, mortgage lenders are often reluctant to lend to people in retirement and are even insisting that current balances are repaid in full when it reaches the end of its term, but thankfully there could still be some help for you.
A Lifetime Mortgage is a mortgage just like any other in that it is just a loan secured against your property, but the key difference is how they are designed. Unlike conventional mortgages, the majority of Lifetime Mortgages do not require an affordability assessment (the main barrier to securing a conventional mortgage) and a poor credit history need not be a barrier.
This is because a Lifetime Mortgage is designed as a roll-up mortgage which does not require any mandatory payments to be made and therefore affordability of any payments is irrelevant and repossession of a property cannot happen for missed payments. Instead, the interest adds on to the amount borrowed.
But if you are still looking to pay some or all of the interest it gets better, some of the plans permit voluntary payments up to a pre-determined percentage of the amount you have borrowed each year. This means that you have a significant amount of choice on how much you pay each year to give maximum flexibility to suit your own income and expenditure requirements.
As you would expect, it’s not all good news! The lenders do restrict the amount they are able to lend against your property based on your age. The older you are, the more will be available, but if you owe more on your existing mortgage than what is available with a Lifetime Mortgage the difference would need to be repaid on or before completion of the Lifetime Mortgage.
Also, if the annual interest isn’t paid off each year, any interest being added to the outstanding mortgage balance will accumulate compound interest and potentially reduce the legacy that you leave to your estate although you are protected with a ‘No Negative Equity Guarantee’ which means your mortgage will never exceed the value of your property.
If you would like to know if this kind of plan is suitable for you then call us for free on 0800 046 9776