Editha

My own view of equity release, is that one should think twice about using it in early retirement. The older you are when you use equity release, the more you get. In my case the difference between equity release at 61 and at 75 is nearly £40,000.

The risk in taking equity release early, is that you may have nothing to fall back on later on. If your house has risen in value over the years, you may be able to release more cash, but that is a gamble.

The UK government is currently being very generous to pensioners, because we baby-boomers are still the largest group who vote. But that can't last forever. As the number of retired population grows, something will have to be done, so it is inevitable that in the long term the value of the state pension and pensioners benefits will be allowed to fall.

I'm assuming that by the time I'm in my mid-seventies I'm going to need extra cash for my care, and I intend to put off equity release until then, if I can.

mayhemuk

Just at the outset I am referring to lender criteria when making the following observations in general terms.

In theory obtaining a mortgage in late years of employment is possible.
Most lenders have a minimum term and loan. Often 5 years and 30-40k.
Some will lend up to a maximum age 75. (few go higher for BTL property)
So in theory you could get a 5 year loan at 70 years old for £100,000.

The issue becomes 'proof of income' into the later years.
Most still work to 65 as 'retirement' age though some will accept 70.

So a 5 year loan of £100k on repayment terms requires capital repayments of £20k a year (then there's the interest) so income needs to support that.
Or a proven repayment vehicle attache to an interest only loan. These usually need to be formal investments (Pensions ISAs etc) with statements showing balances acceptable to the lender.
Few might accept other background property portfolios.

The above might work with 5 years prior to retirement.
Many lenders have a whole other hurdle to climb if your transition to pension income during the loan. In fact if you are already retired with that pension income coming in you could get treated similar to working and get a 10 year loan at 65 if for example you retired prior to 65 as some corporate workers might have done. Still need to consider repayment terms though.

Message is there is no single general answer. A broker will look at affordability, pension if any other assets and see if there is a solution.
Schemes that have been discussed such as equity release require special qualification that I have not studied for yet.

NB Have not even touched on the issue of making such an application from overseas!

luvwelly

Offset mortgages usually let you pay off chunks of principal whenever you like e.g. Barclays.

Editha

Almost all mortgages will allow you to pay off some capital in excess of the scheduled repayments.

dunroving

I think banks are increasingly placing limits on overpayments but offset mortgages are generally more flexible. The advantage of an offset is that you don't really need to make an overpayment (assuming you have the self-discipline to not spend it!) ANY money in the designated offset bank accounts is "offset" against the mortgage so you don't pay interest on that amount. Illustration for a £100,000 mortgage balance, with a 3% interest rate, where you have a lump sum of £20,000 that you could pay off the mortgage:

Regular mortgage - annual interest of £3,000. If the £20,000 is sitting on your bank account, no benefit.

Regular mortgage - annual interest of £3,000, but if you use the £20,000 that was sitting on your bank account to pay extra off the mortgage, your interest reduced to £2,400. The disadvantage is that if you need that £20,000 at any time, tough luck.

Offset mortgage - if the £20,000 is sitting in an account that is designated as one of the offset accounts, your interest is only £2,400. If you want to, you can use the £20,000 and other accumulated savings to pay the mortgage off early. The difference is that if you need the £20,000 urgently at any point, you can use it because it is just sitting in your account.

not2old

HSBC UK is offering to the over 60 a lifetime tracker mortgage @1.99% (BBR+1.49%) with £83 set up fee to those that have £50k investments with them in a premier account.

@post 65 - the dilemma is what do older folks do that can afford to buy a £100,000 - £150,000 property cash or have one fully paid for?

a) Sit mortgage free - no worries
b) Have a tracker mortgage for 50% LTV with the balance in an account that earns zero interest
c) Equity release
d) Downsize to release cash
e) Try if the product is available to get a HELOC that just sits there in the event you need it
f) Sell the house & rent a nice place in the over age 55 sheltered housing community

mayhemuk

I guess the question is what is your income?
If you have pension or whatever (which is usually fixed or hopefully indexed) then you want a housing solution with minimal/zero ongoing cost (Apart from maintenance)
If a cash purchase buys a home that is suitable why do you need the mortgage if you have income that covers everything else.
Or are you thinking of the loan as your 'rent' because the loan always you to buy the place you want/need.

What happens as base rates 'normalise' (as people expect them too) in 2,3 4 years and your 1.99% in now 4.99 or more?

Be interested to see a link to that product as most HSBC products are interest only to age 65 and max age of 75. So repayment terms add to your monthly payment.

not2old

I found the rate on their web page & called them saying that I was calling from Canada. On the other end was a so called 'mortgage specialist'.

I explained I was planning a return, that I was exploring mortgage options in looking at a ~40% LTV within the house price range £100k - £150k, told them my age, what my guaranteed income was & that I could pay cash for the house if necessary. They said I could get a lifetime tracker mortgage on the basis that I was a premium account holder.

Then the up sell was 'have you considered equity release'

On the rates - well easy answer is in the next 10 years the rates wont move or they'll go down in. In the event they go up then when mortgage interest is higher than income interest (& there is usually always a two point spread) it would be time to pay off the mortgage.

I lived through the high interest mortgage rates of the early 80's, even held (as the mortgagee) a first mortgage at 17% on a property we sold. The scaremongering of mortgage interest rates do not scare me even at my age.

A 100% interest only tracker mortgage would be ideal

Editha

a) Looks like the best option to me up to age 75 or so.
b) No point really, is there? You are paying more in interest than you are earning.
c) Probably worth waiting until you are at least 70, when you will get more, and may have more need of the cash.
d) Downsizing from a £100,000 property isn't easy unless you are prepared to live in a badly maintained shoebox in one of Britain's economically depressed areas. Best left until a necessity.
e) Heloc is definitely worth considering, but if you are actually going to use it, the same consideration as equity release applies.
f) Probably not a good idea. You are living rent free in your unmortgaged property, but will be paying rent, and reducing your savings, in your over 55's community. Also, these kinds of communities tend to be expensive, perhaps too expensive: move to the average English village and you'll get the same kind of support and community for free.

Editha

I don't know where you get the idea that rates won't go up for 10 years. Economic growth and unemployment figures are very near the level that the Bank of England said would trigger rate rises. Carney has stated there won't be an immediate rise, but we could still see rate rises by the end of this year. They are certainly not going to go down.

I don't understand what you think the advantage would be in having a 40% LTV loan on a £150,000 house, i.e. a loan of £60,000, when it is conditional on your having £50,000 investments in an HSBC premier account. It leaves you paying interest of 1.99% on £60,000, and getting interest back on your £60,000 of 0.08% (the interest rate on an HSBC premier account).

That's a net loss each year of £1,092.

mayhemuk

Don't forget the lifetime tracker is the lifetime of the loan not you. So you will likely have to find an alternative at 75.
And the maximum term for interest only is 65.

What about the lag between rate hikes on loans vs savings?
When the rates go up there is no rush to increase returns other than for the provider.

not2old

@post 69 & 70, thanks for those really good points.

Based on a 10 year window with a straight 'lifetime tracker' mortgage 40% LTV on a £150k property my rent would be cheap (post 70) some £84/mth & should property prices increase more than what I was paying in interest then I'd be a winner.

With an 'off-set tracker mortgage' the £60k banked, I'd be paying zero interest on the mortgage even if the investment paid zero interest its just sitting there doing not much other than a security blanket.

@ post 71 what alternatives would you suggest?

Over the next 10 years

- will property prices increase or decrease?

- will the spread between mortgage rates & investment rates be constant, variable or will the spread be 1%, 2%, 3%?

dunroving

My semi-educated guess is that as BOE rate goes up, spreads will gradually come down. Banks currently are using higher spreads than pre-crash, either explicitly or via stealth (aka "higher fees").

As you say, having an interest only offset loan gives you the option to have the capital offsetting your mortgage interest (so you are ostensibly mortgage-free/"rent"-free), or in a higher-interest-bearing account if savings rates go up, or available for capital expenditure if needed. In the latter case of course you then will be paying mortgage interest but even if the BOE rate doubles or quadruples that is still less than typical rent.

not2old

just found this

http://www.money.co.uk/mortgages/mor...r-over-65s.htm

http://www.money.co.uk/mortgages/int...-mortgages.htm

dunroving

Wow, some of those APRs are high - though HSBC seems to have reasonable rates (lifetime tracker +1.49%, low fee) - maybe that's the one you referred to earlier?