23rd September 2015

Hodge lifetime: Borrowing into retirement

For many homeowners looking to borrow past their retirement age, options can be limited. The main residential lenders have tightened their criteria significantly for this type of customer even though many would argue that they have sufficient disposable income in retirement to continue making regular mortgage payments.

Traditional equity release plans may be suitable for some of these customers, but for others can be too rigid.  Plans that have a fixed interest rate for life, for example, whilst providing certainty, can be costly to redeem should a borrower’s circumstances change. 

This was the reason Hodge Lifetime designed the Retirement Mortgage, which offers an alternative for those borrowers who don’t yet wish to commit to a traditional equity release plan and have sufficient income to look at other options. It has been designed to offer the flexible features of a residential mortgage alongside the benefit of a lifetime term.

Provided that borrowers have a reasonable level of retirement income, it puts them in control of their mortgage. Unlike a roll-up plan, they are required to make regular monthly interest payments. This means that the debt will not increase throughout the life of the loan. In addition, borrowers are able to make capital repayments of up to 10% of the amount borrowed each year for the first five years without incurring early repayment charges . Beyond this period, the loan can be repaid in full or part without penalty.  Over the longer term, there is also the opportunity to exercise an option to roll up interest once the borrowers have turned 80 or, if later, on the fifth anniversary of taking out the loan. This is coupled with a no negative equity guarantee.

Since the launch of the product in 2013, the profile of Hodge Lifetime’s Retirement Mortgage customer has varied from the traditional equity release customer. The average property value and average loan amount for Retirement Mortgage borrowers is £344,000 and £100,000 respectively; the average  loan amount being almost double that for roll-up customers.

The reasons for customers taking out the Retirement Mortgage are numerous but include gifting to relatives, home improvements and paying off existing debt (both secured and unsecured).

The following case study shows how the Retirement Mortgage attracted the Smiths, who were coming to the end of the term of their existing interest-only mortgage with a shortfall of £60,000 remaining.

Both Mr and Mrs Smith had some reservations with traditional roll-up equity release - they were not comfortable with an increasing debt and were happy to continue using their income to service the loan. They also wanted to repay the loan in full over time but were worried about having a ‘cliff edge’ repayment date again at some stage in the future. They did not want to find themselves in the same situation in 15 or 20 years. 

The Retirement Mortgage from Hodge Lifetime offered them the comfort of knowing that the capital could ultimately be paid off on death or going in to long term care. It would give the flexibility to manage the debt and also allow them to make overpayments using the Flexible Repayment Option to reduce the capital balance if required. 

For more information www.hodgelifetime.com

Retirement