Why do our financial options seem to narrow, just when we’ve hit our peak? We look at reasons why this occurs and discuss our first product offering which is designed to address this issue.
New data shows that some 83% of homeowners aged over-55 who need a home loan are being denied one. 8 in 10 denied a mortgage? A truly staggering statistic. This was recently covered by This is Money and the article went on to state; “A study carried out by broker Retirement Mortgage Service over the past year found that more than 30,000 retired borrowers got in touch with their advisers, with 2,540 making a full application to refinance their mortgage. But just 438 of these customers were able to refinance onto another mortgage, a retirement interest-only mortgage or a lifetime mortgage. The remaining 2,102 customers … didn't qualify for any product that met their needs.”
The poll appears to show that many borrowers are being forced onto their lender’s standard variable rate, thereby becoming so-called ‘mortgage prisoners’.
Changes after 55
For many older borrowers, once they turn 55, they discover that their available credit options begin to change and often reduce in scope. How? The options to remortgage on terms they have been used to all their lives are now limited. The range of loan choices which are not secured on their property, also reduce, both in terms of loan size and period over which they can borrow. This can seem a little jarring from the consumer’s point of view, as they’ve often worked hard all their lives to own their homes, to build up savings, investments and a comfortable pension and to ensure they have a good credit score.
Why the change?
The obvious and main factor behind the change of financial options post 55, is that incomes become more limited with age, and most lenders still look primarily at salary income, without giving the same weight to other factors such as assets held, or other potential indicators of creditworthiness such as a pension or other forms of investments and savings. However, peoples’ lives are changing, and so are their motivations for seeking credit later in life. For example, second marriages and families started around this age will drive the need for longer working lives and often a new borrowing requirement.
What are the alternatives?
So, if you’re 55 or over, and you need to refinance your mortgage or raise a significant lump sum, what can you do? Equity release is an increasingly popular option and is mainly targeted at and considered by older borrowers. However, it can be a very expensive way to stay in your own home as interest will accrue for the rest of your life or until your property is sold if you have to go into full-time nursing care.
The retirement interest-only mortgage is another form of equity release, where homeowners borrow on an interest-only basis and alongside e normal interest repayments, some repayment of capital is allowed – usually up to 10% each year. Other options include dipping into pension pots, selling assets, or calling upon other savings and investments.
At free2, we’re introducing more options
We’re providing new alternatives for people over 55. Our first product offering, the Over 55s Unsecured Loan, gives people the opportunity to borrow a significant lump sum, using their excess guaranteed pension income (as opposed to salary income) to repay their debt. Provided you can comfortably afford the repayments, we believe you should have the freedom to borrow without using your home equity, as another way of raising and spending a lump sum once you’re 55 plus. You can borrow from £15,000 to £150,000 at fixed APRs over terms from 5-20 years. It’s not secured on your home, and if you die during the loan term, it will be written off in full. You can borrow for any reason, so long as it’s not for business purposes. Credit available subject to status, of course.
As credit brokers for the Over 55s Unsecured Loan, we think borrowers will find it a welcome alternative to existing, more familiar options such as equity release, drawing down taxable sums from a flexible pension, or using savings and investments. Find out more about some of the potential uses here, or visit our loan calculator to see how much you can afford.
Free2 Limited (trading as free2) is an Appointed Representative of RS Consumer Finance Limited (RSCF) which is authorised and regulated by the Financial Conduct Authority (the FCA). free2 is a credit broker, not a lender, and will only offer loans from RSCF – an offer of credit is subject to status and affordability. Example Loan: 60-year-old non-smoker, £30,000 over 10 years with fixed monthly payments of £344.56, interest rate 6.73% and an APR of 6.97%. Terms & Conditions apply.
Customers wishing to use the free2 Equity Release Advice Service, once registered, will be introduced to partners Money and Advice Planning (MAP). The free2 Equity Release Advice Service provides a free initial consultation followed by an advisory meeting, for which a fee of £595 is charged on completion of a successful application.