Coming to the end of your interest only mortgage?

According to our good friends at Shawbrook Bank, there are an estimated 600,000 people due to come to maturity on their interest only mortgage by 2020.   Many will probably have no way of repaying their interest only mortgage.  Some will have endowments that didn’t meet expectations, or maybe the house has not increased in price as much as hoped.  Stricter mortgage rules and lending criteria has made it harder for those over 55 wanting to re-mortgage. However, despite the high street being almost a closed entity, there are plenty of other options (not that your current lender are likely to advise them - they just want their money back!).

Come normal retirement age, the lender has the right to request repayment of their loan at end of the mortgage term.  If the customer has no way of repaying this and has just continued to pay the interest over the last twenty five years or so, they face the possibility of having their home repossessed or being forced to move out.  On the high street, the end of the loan term will normally hit those aged between 65 to 70.  This is not new news, but does highlight that many people are still burying their head in the sand and hoping this will go away or the lender may be lenient.  No chance on either.  You may get a one or two year extension, but the lender will want their money back and that you cannot avoid.

We all know life doesn't end at age 65-70 and neither should it on the high street!  Often, retired people have managed their finances successfully over the years and enter retirement mortgage free.  At the same time, many, whilst having no mortgage, also suffer from reduced income and there is a saying in our profession that it is not always wise to have everything tied up in bricks and mortar and yet have nothing to spend.  Others may wish to continue their mortgage past normal lender retirement age, whilst they may still be working.  There are schemes where equity can be turned into a mortgage (not necessarily equity release) and where off-spring may be able to assist with the repayments in order to secure and protect their inheritance whilst also ensuring a comfortable retirement for their parents.  This is not right for everyone but it is certainly worth talking to a qualified adviser to review all possibilities.

There are a number of lenders that recognise that 'normal retirement' age is no longer set in stone and people continue to work long in to later life. These are not high street names and as such, rates may be slightly higher than the big super tanker, large volume producing household names that we are used to.  But at least they will consider helping out and could keep you in your home!

Delays with high street lenders? - same products quicker with Mortgage Brokers.

AToM has launched a new exclusive mortgage product aimed at the over 65s.  The Retirement Remortgage product is designed to assist those who wish to continue with a mortgage when their current mortgage term expires and their lender requires repayment of funds.  Or those with large equity in their property who wish to raise finance for specific projects. There is no maximum age and this offering  will allow customers to borrow up to 50% of the property value either on a repayment or interest only basis.   Interest rates are calculated based on the borrower’s individual circumstances but start from 4.50% fixed for two years (4.9% APR).  A minimum property value of £300,000 applies and terms and conditions apply.    

Whilst talking remortgages, the market is awash with lenders actively looking to attract new customers.  Whether you want to fix your monthly payments for a period of time, or you fancy a low rate tracker mortgage - or maybe both - a tracker rate with the option to fix later on, there are plenty of great products currently available.  Many lenders are offering superb remortgage opportunities with minimal costs to change, including free standard valuations (lender survey on your property) and legal costs (solicitors or conveyancer to register the charge in the new lenders name).  Rates are competitively low and mortgage product choice is at its highest for some time. 

Finally, we have had many mortgage customers approach us who have become frustrated in recent times.  Mainly with two things:  firstly, that some of the local banks or building societies cannot see mortgage customers for a matter of weeks (we heard one was booking four weeks ahead!) and secondly, each appointment often takes well in excess of a couple of hours.  Sadly, for whatever reason, that lender could not offer the customer what they wanted and so they went to another lender and sat through another hour or so only to find they could also not then offer what was required, and so on.  This is a large consumer commitment to time but without a satisfactory solution.  This is where independent and whole of market brokerages come into their own.  They will be able to offer you access to a number of lenders, including the high street names, if appropriate, and you only need to have one conversation with the same person.  In addition, they should have access to lenders who will manually assess your needs rather than a ‘computer says no’ type scenario, if required.  If I can also ‘plug’ a little, we also have access to a number of limited access lenders and exclusive products (as mentioned earlier!) not readily available to the wider mortgage market! 

Life does not end at age 70!

You may be surprised to hear this, but life does not end at age 70!  This is despite a majority of mortgage lenders requiring full repayment of their loans at this age.  Normally, a high street lender will allow a mortgage term to last until the applicants usual retirement age.  This used to be 65, officially it's now 67, but the reality is it can be much later.  As such, most lenders increased their maximum age at the end of mortgage maturity to age 70.  However, we all know that people are working a lot longer now and repayment of such a large amount of money may not be possible in these restrictive conditions.  So the option is to raise further finance to repay the original loan or sell the property.  Thankfully, the first option is less onerous as it used to be.  Many non household name lenders will look at lending to customers a lot later in life, assuming the customers can prove  their continued ability to pay.   This can take the maturity age up to age 80, 85 or even 90 and above.  If the customer has a good amount of income, a good amount of equity in the property and can satisfy the lenders affordability requirements, then a lender should be happy to lend.  This almost demands that you seek specialist advice. 

There are a number of mortgages available to those over retirement age.  We’re seeing a lot of first time buyers turn to the bank of Grandma and Granddad as the money well of Mum and Dad appears to be running a little dry!  There are various ways in which the older generation are helping the first timers.  Some are gifting deposits, to help them on to the property ladder.  With most products, the larger the deposit, the lower the interest rate. Others have agreed to the placement of a collateral charge on the parents or grandparents property.  This gives a lender more security and maybe a better credit risk rational to the deal, than originally might have been the case.  In some cases the parents have joined in to provide additional income support and bolster the overall  application.  Whichever way required, always explore the options and have a conversation with a professional as there may just be an alternative way to do the deal.

Lenders look for opportunities

Interest Only mortgages have been hitting the headlines once again.  This time after our regulator, the Financial Conduct Authority (FCA), have carried out a thematic review on interest only across the market.

The report highlights that 2.6m residential interest only mortgages represented 29.4% of all residential mortgages in December 2011.  It is also estimated that 12% of residential interest only mortgages are currently in negative equity (value of property less than the loan borrowed).  

Most believe that in the height of the 2007/08 market boom, many interest only mortgages were taken out, without a repayment vehicle in place (historically endowments, more recently ISA’s, etc).  But with so many not having plans in place, this is a potentially huge problem on the horizon for the FCA and lenders to deal with over the coming years/decades.  

For a customer to get to the end of their mortgage term and still owe exactly the same as when they took it out, with no form of repaying the loan apart from selling their property, creates a major headache for the lender, especially when they want their money back!  This is also part of the reason as to why so many lenders have recently moved away from interest only all together.

In addition, most high street lenders will only lend until normal retirement age, so those looking to extend their loan beyond normal retirement age, may only find a small number of mortgage lender options.

However, some lenders are seeing this as an opportunity.   One such lender has targeted the over 65s and provided a solution to the ‘lending in retirement’ conundrum.   As long as the loan is below 50% of the property value, affordable within 4 x salary/pension/income with £150k equity in the property, then a long term interest only mortgage may be possible (not equity release).

This may also apply to those who, whilst having no mortgage, have suffered from reduced income and need to review options. Product innovation is providing schemes where equity can be turned into a mortgage and where off-spring may be able to assist with the repayments in order to secure and protect their inheritance whilst also ensuring a comfortable retirement for their parents. This is not right for everyone but it is certainly worth talking to a qualified advisor to review all possibilities.

Have you heard of......

A quick test to start this week!  Have you heard of the Mansfield Building Society?  What about the Saffron, Manchester, Buckinghamshire, Furness, Shepshed, or the Stafford Railway Building Society?  Not necessarily household names, but not ones to be ignored either.  We are seeing these names and a lot more like them launching innovative products.  Not necessarily looking for huge volumes, but looking to fill gaps in the market and this should be applauded. 

One such lender has an option available to those in retirement and above the age of 65. They’ve realised there’s a huge gap (unless it’s an equity release mortgage required) and have launched a variable rate mortgage product specifically designed to assist this type of consumer. This can be on an interest only basis and up to any age.  Income must be provable, whether this is from pensions, investments, rental income, even earned income or off-spring support and must fit the lenders affordability criteria.  A max of 50% of the property value can be advanced and there are only redemption penalties in the first year.  This makes it reasonably flexible and an ideal solution for when the normal mortgage is coming to an end and the existing lender has requested their funds are repaid.  Remember, this is a standard mortgage and not a lifetime/equity release type solution.

What this all demonstrates is that there is an appetite to lend in a still very tough market.  However, many consumers are turning to the internet as it’s such a superb tool.  But it can also be a disadvantage as so much information, news, product and detail can make it more confusing than planned.  A good ‘old fashioned’ face to face conversation with your local specialist independent mortgage brokerage might be the answer. They will, in most cases, have a relationship with the lenders (even those you’ve never heard of!), understand their requirements and ensure all the correct information is submitted from day one.  There really is no better time to utilise the expertise and staffing levels they can provide for you in what’s becoming an over informed and more recently, highly competitive market place.

Product innovation is welcomed

Delays delays delays!  Some lenders are a couple of weeks behind, some even a couple of months.  Yes, a sign of a buoyant market, but also a sign that although volumes are no way near where they used to be, lenders still don’t have enough staff to cope and process the current volumes of business or to catch up on back logs.  Some have even tried to stem the flow of business by raising rates, but as yet, this has not helped.  Demand is most definitely out there.  If you are in a rush to purchase a property, I would check current service levels with the lender you are looking to put your application to, before releasing any of your hard earned cash!

For those looking to remortgage to a better rate, now might be a good time to do it, even with the delays.  There are some good deals to be had and especially in the longer term fixed arena.  Terms and conditions will apply, etc.

As I mentioned some while back, we are seeing some of the smaller lenders launching innovative products.  These lenders are not high street names and are not necessarily looking for huge volumes, but they are looking to fill gaps in the market and this should be applauded.  One such lender has reviewed the options available to those in retirement and above the age of 65.  They’ve realised there’s a huge gap (unless it’s an equity release mortgage required) and have launched a variable rate mortgage product specifically designed to assist this type of consumer.  This can be on an interest only basis and up to any age.  Income must be provable, whether this is from pensions, investments, rental income, even earned income or off-spring support and must fit the lenders affordability criteria.  A max of 50% of the property value can be advanced and there are only redemption penalties in the first year.  This makes it reasonably flexible.  To find out more about the AToM Retirement Mortgage, please call us, we’d be delighted to assist.

..introducing the Retirement Mortgage

More lenders have joined in the latest trend of increasing their Standard Variable Rate (SVR). This is the Lenders own rate of interest, and the rate which a customer normally reverts to once their specific product (i.e fixed rate) period comes to an end. The latest change comes from Yorkshire/Clydesdale who increased their SVR from 4.59% to 4.95%. This was following Bank of Ireland (2.99% to 4.49%), RBS (3.75% to 4%) and Halifax (3.50% to 3.99%) over the last couple of weeks. These can affect some existing customers as well as new customers. The general consensus from the lenders was that the changes were necessary to bring them ‘into line’ with other lender offerings. Do you know what yours is? Maybe this is a good time to review your mortgage and the small print? We do tend to see someone lead the way and others follow quickly behind. The most recent example was the restricting of the percentage (of property value) someone could borrow on an Interest Only basis. Now we’ve seen the increase of SVRs. What’s next…? Life is rarely dull in the mortgage world!

On the positive side - we are seeing some of the smaller lenders looking to launch innovative products. Not necessarily looking for huge volumes, but looking to fill gaps in the market and this should be applauded. One such lender has reviewed the options available to those in retirement and above the age of 65. They’ve realised there’s a huge gap (unless it’s an equity release mortgage required) and have launched a variable rate mortgage product specifically designed to assist this type of consumer. This can be on an interest only basis and up
to any age. Income must be provable, whether this is from pensions, investments, rental income, even earned income or off-spring support and must fit the lenders affordability criteria. A max of 40% of the property value can be advanced and there are only redemption penalties in the first year. This makes it reasonably flexible. One final thing, I’m delighted that the lender has made this totally exclusive to AToM and it is the only product of its type in the current mortgage market! What a plug! To find out more about the AToM Retirement Mortgage, please call us, we’d be delighted to assist.