Most of us would like to think that once we reach our 80s or 90s, our mortgage-paying days will be long gone. But life sometimes doesn’t work out like that, and there are those who still need a home loan in their 10th decade.
Audrey Lewis is one. She is 91 and would like to extend the interest-only mortgage on her central London flat. However, say her family, her current lender indicated it can’t – or won’t – agree.
Lewis is in good health and keen to live in the flat for the rest of her life, but is worried she may be forced to move out if she can’t extend her current deal or switch to a new one. Her concerns prompted her family to contact the Observer to ask for advice about her options.
The good news is, that for many, old age is no longer a barrier to obtaining a mortgage, thanks, in part, to a new type of deal.
Demographic changes, with many people living and working longer, buying a home later and opting for a longer mortgage term, mean there is a growing demand for “later life” borrowing, and lenders are willing to meet it.
Lewis has been living in her one-bedroom flat close to Regent’s Park for about 15 years. She bought it with the help of a £130,000 interest-only mortgage taken out jointly by her and one of her sons and, says her daughter, it “is in a very desirable location and well-maintained”.
Her mortgage is with Bank of Scotland, part of the Lloyds group, and is due to end in 2022. Her daughter says she “would prefer to see out her remaining years in the flat if possible,” so the family approached the bank to inquire whether the mortgage could be extended, but it was apparently unable or unwilling to help.
Lewis’s daughter says they are not “asking for charity,” but that the bank needs to remember this is “an elderly and vulnerable lady”.
In Lewis’s case, there is potentially a big stumbling block: there are only about 14 years remaining on her flat’s lease. The shorter the lease, the more difficult it is to get a mortgage, and many lenders won’t lend on a property if there are fewer than 60-70 years left.
It is fair to say that extending it at an earlier stage would probably have made things easier all round, though presumably this would have been expensive and possibly not straightforward.
Despite the short lease, Lewis’s flat is said to be worth about £375,000 (it was last valued 18 months ago).
However, there is some hope: Bank of Scotland offers mortgages provided by the Halifax, whose website states that a lease with fewer than 70 years left is acceptable for “certain central London” locations, and Lewis’s flat is certainly in a prime spot. And the bank told the Observer that it is keen to help, and may be able to give the family more time, beyond the end of the mortgage term.
Bank of Scotland says: “We’re keen to support the Lewis family. When the mortgage was taken out in 2006, the lending amount covered the cost of extending the lease; however, this has not yet happened.
“Once this process has been started, we’re very happy to provide additional time, beyond the end of the original term, to allow for it to be completed and for new mortgage finance to be put in place.”
But what about other older borrowers who want to extend an existing mortgage or remortgage to a new one?
Traditionally, mainstream lenders had a cut-off age of 70 or 75, but in recent years some have scrapped the upper-age limit.
At the same time, a new breed of interest-only mortgages is starting to take off. Called “retirement interest-only” (Rio) mortgages, these could throw a lifeline to those with an interest-only loan that is coming to an end.
They are very similar to standard interest-only mortgages, with one big difference: they don’t usually have a set end date and carry on until the borrower’s death, or when they move into a care home, or the property is sold.
Until then, the borrower just pays interest each month, and the loan is ultimately repaid from the sale of their property.
There are now more than 110 Rio products, offered by 21 different providers, mostly building societies, according to research issued this week by data provider Moneyfacts.
Providers include the Nationwide, Leeds, Cambridge, Bath and Tipton & Coseley building societies. There are also some specialist providers such as Hodge Lifetime and LiveMore Capital.
The average rate on a Rio deal is 3.59%, but you can get a lot cheaper – for example, Hanley Economic building society’s rates start at 2.34%.
There is usually a minimum age to apply – typically 55 – and quite a bit of variation in terms of the maximum age. With many lenders, including the Ipswich, Mansfield, Melton Mowbray and Scottish building societies, there is no maximum age.
At Nationwide, those holding one of its mortgages can apply up to their 95th birthday, while for non-Nationwide customers it’s 85. At Leeds building society the maximum age at application is 80.
You will need to pass affordability checks to prove you can manage the monthly interest payments, which may mean you need to be receiving a fairly decent pension.
There are also limits on what you can borrow: the maximum loan is typically between 40% and 60% of the property’s value, though will sometimes go as high as 75%.
The majority of Rio rates last for a set period – that is, they are fixed or discounted off the variable rate for a few years, but there are also some which offer rates for life.
Nick Morrey at mortgage broker John Charcol says that Rio mortgages can be a good option for older borrowers to consider.
“They aren’t as cheap as ‘normal’ mortgages, but they have no end date (although the paperwork may talk about a term up to 99). The mortgage will only come to an end, with the debt needing to be repaid, on the sale of the property when, for example, the applicants die or go into long-term care.”
Morrey says that with Rio loans, many people prefer a fixed rate, but there are not many that last for more than five years.
That said, according to Moneyfacts, Nationwide has a 10-year Rio fix at 3.39%, while the Leeds has 10- and 15-year fixed rates priced at 3.89% and 4.04% respectively, and LiveMore Capital has a 20-year fix from 4.35%.