Last year, the number of over-55s cashing in on their homes by making the most of equity release hit a record high.
According to the Equity Release Council, £571.6 million of equity was released from older homeowners’ properties in July, August and September. This was the highest figure on record and a 26% increase from the year before.
With the state pension age on the rise, it’s no surprise that so many people are turning to equity release and remortgages in a bid to free up cash. However, thanks to strict lending criteria, borrowing against your home can become a little difficult as you get older.
How do I prove my income?
As with any mortgage, you’ll need to prove that you can afford the repayments each month. Your lender will assess your financial situation, looking at everything from bank statements to payslips.
If you’re nearing retirement (or you’ve already reached it) meeting affordability criteria could be that little bit harder. If you don’t earn a salary and you’re not self-employed, lenders will look at income from pensions, annuities, rental properties and investments to determine how eligible you are.
Do lenders have an age limit?
Many lenders impose a maximum age limit on their lending. Rather than assessing the age you take out the mortgage, most will look at the age you expect to have repaid it. So if a lender sets their maximum age as 75, customers won’t be able to take out a 25-year-mortgage after the age of 50.
Thankfully, there are lenders out there that are willing to set higher age limits. With people living longer in retirement than ever before, some lenders have increased their age limit to as high as 80.
Some mature homebuyers choose to repay their mortgage in a shorter period of time in order to abide by lenders’ age limits, but this approach can make a huge difference to the affordability of repayments. For example, let’s imagine you borrow £85,000 at 1.84% over the course of 25 years. Repayments would be £354. If you were to take the same deal over just 15 years, your repayments would rise dramatically to £541.
Could I downsize my home?
In theory, downsizing to a smaller and less expensive home should be a relatively straightforward move. If you’re already mortgage-free, you can use the cash from the sale of your existing property to buy the new home outright. Not only will you not have to apply for a mortgage, you’re also likely to be favoured by sellers.
If, however, you haven’t paid off your mortgage in full, you may need to get a new loan on your smaller property. This is where problems can arise. Even though you managed to get a mortgage on your existing property and have presumably proven your ability to make repayments, you may encounter problems getting a new mortgage.
Whether you’re self employed, your credit rating has changed or you’re nearing retirement age, some lenders may reject your application. Thankfully, there are flexible and understanding lenders out there who are willing to lend to people with less than perfect circumstances.
If you’d like help tracking down the lenders most likely to give you the loan you need, please get in touch with the team at TaylorMade. Whether you’re looking to downsize or remortgage your property to free up cash for retirement, we can help you increase your chances.
