Once upon a time, accessing a full spectrum of mortgage options used to be out of the question for those over the age of 60. Today, some lenders are raising upper age limits and making a wider variety of products available to over 60s, including the opportunity to make use of an interest only mortgage.
What is an interest only mortgage?
An interest only mortgage, in its most basic form, does exactly what it says on the tin: mortgage users only pay back the interest on their loan until the end of the loan period – then pay off the capital using a pre-agreed source of finance (known as a repayment vehicle).
For individuals over 60 years of age, these repayment vehicles might be a pension scheme, for others, it may be having a concrete expectation of receiving a significant sum of money before the end of the mortgage term, or a plan to even sell the property and downsizing or moving in with relatives.
Understanding the rules for over 60s
The rules surrounding the type of repayment vehicle you could use tightened up significantly with the introduction of the Mortgage Market Review (MMR) in 2014. This significant change to mortgage lending rules was a response to the liberal lending which contributed to the house price boom and bust of 2007/2008.
Although many areas of the mortgage market were affected, interest only mortgages came under major scrutiny and the new rules toughened up repayment vehicle requirements. Your payback plan had to be much more reliable post-2014, and typically could no longer be based on an expected inheritance or the sale of the property itself.
These rules are now relaxing slightly, in tandem with the lifting of age restrictions. With a clear and feasible plan in place, the future sale of a mortgaged property is now an accepted repayment vehicles depending on the lender.
Interest only, equity release & lifetime mortgages
These interest only mortgages are frequently confused with lifetime mortgages, which are repaid by the sale of your property after your death and are a slightly different product. Also known as equity release, this product is often used by older people as a way to access some of the equity tied up in their property and when they typically do not have the ability to support the monthly interest charged or simply wish not to have to cover this from their income.
Many older people who took out an interest only mortgage before the MMR tightened up lending use equity releases when they find that they do not have sufficient funds to cover their final capital repayment.
What length of mortgage can I use?
As we get older, the length of the mortgages available to us shrinks. Yet in recent months and years, many providers have raised age limits on products as life expectancy in the UK rises.
At the age of 65, a 15-20 year mortgage term is likely the upper limit. At 70, 10 years or less may be the maximum mortgage term available to you. These limits vary widely depending on the provider.