22 November 2018

Mortgages after retirement

Most people envisage paying off their mortgage before they retire so that they no longer have to worry about the monthly payments once they stop working. But the reality is that this may not be possible.

Research from the Prudential shows that the number of people retiring in debt is climbing, with 1 in 5 expect to retire owing an average of £33,000, the main source being mortgage and credit cards.

If you find yourself in this position there are options available, such as downsizing to a smaller or less expensive property to clear the mortgage and ideally free up some cash to pay off other debts.

For those aged 55-plus, it may also be possible to utilise the tax-free lump sum from your pension. Pension freedoms allow you to access larger amounts but there are tax implications and you should always seek independent advice before taking the plunge.

It is worth seeking advice to find out whether you can restructure the debt onto more attractive terms. While there are statutory retirement ages, in reality it is more of a grey area with many borrowers working beyond retirement age and in receipt of pension/investment income. Several specialist or regional lenders offer terms in later life, such as lending into your late 80s or even mid-90s (Family Building Society) while some don’t state a maximum age at all (Loughborough, Bath, Cambridge and Harpenden building societies). The mortgage will still have a fixed end term date and you must prove affordability and make monthly repayments.

Residential interest-only (RIO) mortgages are another option worth considering from lenders such as Bath and Vernon building societies. These are available to borrowers aged 55-plus, subject to an affordability assessment. The borrower takes out a mortgage or remortgage with no fixed repayment term and the capital debt is repaid on a specified life event, such as death or moving into long-term care. Monthly repayments are required.

As with all of these, seek financial advice as these options could potentially impact your tax position and any means-tested income.

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