The Silver Mortgage Market

In the past there was a choice of two products for older borrowers. Either by selling the home to a Home Reversion company who were gambling on how quickly they would get the keys to the home, or by borrowing to release a sum of money allowing interest to roll up against the value of the house.

Home reversion plans effectively gave total possession of the property to the loan company. They would use actuarial calculations based on age and health to see how long they would have to wait for possession. The longer the seller lived, the less profit for them.

Equity release interest roll up mortgages were very expensive. The high interest rates charged, and the compounding of interest costs, meant that without above inflation capital growth in house prices families were short changed after their loved ones had departed.

Recent developments have seen the advent of products that are far fairer. Interest roll up at rates more akin to normal borrowing. Rates in the past were more than double normal mortgage interest rates. Early repayment charges were also frequently penal. Interest rates are now normalising as lenders have finally realised the sheer size of the market available, and the immense security older borrowers with large amounts of equity possess.

Interest only mortgages that allow payment of the interest. These are known as RIO’s – Retirement Interest Only mortgages. Interest payments are far more affordable then capital and interest. The loan against the property never goes up as long as the interest is being paid. The option is far cheaper than selling and renting, and keeps the borrower in the family home.

Silver Mortgage Market photo

Capital and interest mortgages where lenders will use pensions in payment as affordable income when assessing ability to pay. This can take the age into the 80’s for some lenders. If pension income is sufficient then it can be used to prove that a mortgage is affordable. There are still caveats, and there is a need for private pensions to pass to the survivor in a joint application which rules out any state funded pensions or benefits.

Equity release mortgages allow either a lump sum to be drawn down for a specific purpose the most common of which is to buy an annuity, or for regular payments of income. Taking a lump sum was traditionally the only way to take equity from the home. Income is now available via a drawdown facility for either sporadic payments based on need, or for regular monthly payments where income is required. This system benefits the borrower as interest does not being to roll up until the money is drawn down. Many still prefer a lump sum to fund an annuity as there is no investment risk, or funds management involved.

Gary Andrews Financial Services is a trading style of Tom French & Associates Ltd Independent Mortgage Advisers authorised and regulated by the Financial Conduct Authority FRN 185513. Your home may be repossessed if you do not keep up repayments on your mortgage.

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