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Higher house prices have meant that buyers are purchasing property and moving up the property ladder when they are much older than they were 15 or 20 years ago, resulting in a high number of pensioners repaying a mortgage.
In 2006, 25% of new mortgages were taken out by people over the age of 65. Today the figure is 40% – a considerable jump in just 11 years. However, mortgage experts believe that this figure is artificially low because of new rules introduced after the mortgage crisis, meaning that there is a huge pent-up demand for mortgages for those over the age of 70.
Deals are becoming increasingly available but the profile of older borrowers isn’t clear-cut. Many older people are taking out mortgages on behalf of children as the younger generation are finding it difficult to secure lending, or may be overstretched from the previous mindsets of taking out an interest-only mortgage without having to prove how they will repay it later on in life.
In addition, many older people are remortgaging to help put children through college or university. Larger initial mortgages, much smaller pension pots and a bigger requirement to financially help children and grandchildren means that many people require loans for a longer repayment period.
There are, of course, others who are at the other end of the wealth spectrum: those who have ample capital and income and are borrowing as a way of protecting their estates from inheritance tax.
There are also those who find themselves in a distressed situation whereby the term of their loan has ended, and they find that there is a shortfall in their existing mortgage and so moving is the only solution. These people will often look at rolling their conventional mortgage into an interest-only “lifetime” mortgage. Lifetime mortgages fall under the umbrella term “equity release”. The borrower typically doesn’t make monthly payments at all. The interest, generally a fixed rate, rolls up and is compounded.
This interest alongside the original capital sum needs to be repaid when the borrower sells their home to move into care, for example, or on death. Fixed lifetime mortgage rates are higher than standard mortgage rates, mainly because the lender is taking a risk on the unknown length of the mortgage term.
Some homeowners will borrow against a property and gift this money to family members in order to reduce their inheritance tax liability.
In order for this to be effective, the borrower needs to survive seven years after this gift is given so that the money falls outside the estate for tax purposes. This only works if the cost of the mortgage remains below the inheritance tax that would otherwise be due.
Your home may be repossessed if you do not keep up repayments on your mortgage.
If you would like financial advice please contact Derngate Wealth today.