Laverne Hadaway looks at how the mortgage market’s treatment of those nearing the age of retirement has changed
Although there is no widespread documentation, increasingly there are reports of retired people or those nearing retirement with interest only mortgages reaching the end of their mortgage terms with no means to repay the capital.
Often they are equity rich, but cash poor so their homes may be worth a lot more than the outstanding balance left to pay on their mortgages. Nevertheless, lenders are beginning to turn and threaten repossession.
It was all so different before the credit crunch. Back in 2007, a national newspaper ran a story about the oldest person in the UK to be given a mortgage. He was 102 and obtained an interest only mortgage over a 25 year term. His intention was to let out property and make his repayments through rental income.
At the time, organisations such as Age Concern and Citizens Advice warned that taking out a mortgage in later life could lead to financial difficulties and stress for older borrowers. However, at the time, the broker interviewed suggested that lenders had eased their restrictions on the age of borrowers in order to “keep in step with the market”.
Dramatic house price increases between the mid 1990s and up until the credit crunch have left many older borrowers with highly valued property. It was during this period that many may have been tempted to remortgage, whether to get into buy to let or other investments, help children, or deal with other debts.
Failed endowments are said to have contributed to this phenomenon with homeowners failing to put replacement investment vehicles in place once it was clear that they would not provide sufficient to repay the mortgage. Borrowers also failed to convert to a capital and repayment mortgage to ensure that it was repaid at the end of the term.
Today’s pensioners that are getting into trouble may simply have opted for an interest only deal just for a short time while things were financially tight, but failed to revert to a repayment plan. Some mortgages have simply been set up to finish after the borrower was due to retire, or there may have been insufficient planning to ensure that there would be enough income in retirement, or the unexpected happened – an accident, illness or divorce.
Whatever the circumstance, organisations such as Shelter and Which? suggest that they do not have much of a legal leg to stand on. The threat to repossess is real.
Figures from retirement lobby groups show that half of pensioners are struggling to cope with the rising cost of living. According to Saga, 34% of over 50s say that their home is in need of repair, while 15% say that they cannot afford to repair their homes.
A report published by Aviva at the end of 2010 showed that 11% of over 65s, some 1.1m, have mortgages worth up to £70,313. At the age of 75, around 10% have a mortgage of £72,500 on average.