Your comprehensive guide to retirement mortgages

If you’re shopping around for a mortgage designed for people who are retired, you may find the process a bit bewildering. For example, 64% of people* have taken out a mortgage or personal loan without fully understanding how it works, while a meagre 4% of those over 50** even knew they could get a new mortgage. The truth is, that mortgage options in retirement are broader and better than ever.

Fundamentally, retirement mortgages shouldn’t be complicated, especially considering the 2023 Consumer Duty standards set by the Financial Conduct Authority (FCA).

How Consumer Duty affects your mortgage in retirement

The FCA set up Consumer Duty guidelines to ensure “the best outcomes for consumers”. They did so by placing more responsibility on mortgage lenders and advisers to prioritise your interests, whether you’re approaching retirement, or you’ve already hung up your hat.

When they offer you a range of options to consider, they’ll need to make it easy for you to understand how they’re similar and the differences between them.

One of the principles behind Consumer Duty is to safeguard vulnerable customers. The FCA describes a vulnerable person as “someone who, due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care.”2

The ‘personal circumstances’ here refer to people: 

1. with low resilience to financial or emotional shocks. This could include those who are in debt or have limited savings.
2. with poor mental or physical health or differently abled.
3. who have recently experienced a challenging event such as divorce, new caring responsibilities or bereavement.
4. with limited capability with literacy or numbers, or with poor digital skills. 

This could potentially affect a lot of people who are retiring or have already retired, especially considering the high cost of living. In fact, in autumn 2023, we surveyed 500 homeowners aged 50-79, and nearly a third (32%) of them considered themselves vulnerable. Why? Mainly due to financial issues and health.

Our job is to help you understand mortgages in retirement. So, let’s do that. 

What is a retirement mortgage?

A retirement mortgage is a loan secured against your main residence and is similar to a standard interest only mortgage, with two key differences. The loan is usually only paid off when you die, move into long-term care or sell the house. You don’t have to be retired to apply for a retirement mortgage.

How can retirement affect your chances of securing a mortgage? 

We understand that as you get older it’s important to stay in your own home. Maybe you need to be near family and friends, or you want to hold on to cherished memories of family life.

However, it’s not always easy for retirees to secure a mortgage.

Lenders might be concerned that you have less time to pay off your loan, or that your income will drop. For example, they’ll check that you aren’t only relying on your state pension to pay your mortgage, so they’ll ask about other income sources like financial investments or property rentals.

Lenders will also know that those over 50 are more vulnerable to health issues, which could make it more challenging to repay your mortgage in full.

For all those reasons (time, income, and health), many lenders impose age limits on their mortgage deals.

However, other lenders (like LiveMore)will consider customers well into their 80s and even beyond, depending on their circumstances. For example, we had a new customer who was 92.

• Affordability criteria

While many lenders will offer shorter terms because of your life stage, others will offer terms up to 35 years or for life, depending on your requirements and circumstances.

The UK population is both living and working for longer than ever. And despite the later-life lending sector being under-serviced by lenders, there’s more flexibility around approving their mortgages. 

Ultimately, the amount you can borrow depends less on your age and more on your financial circumstances. Lenders will consider your monthly income and outgoings, as well as the equity you have in your existing property or the deposit you have for a new home.

In five simple steps, find out how much you could borrow with LiveMore by using our affordability calculator.

Which is the best retirement mortgage for me?

There are four main options for borrowers aged 50 to 90+. These are; Capital and Interest (repayment) mortgages, Standard Interest Only mortgage, Retirement Interest Only (RIO) mortgage, or a Lifetime mortgage.

Lifetime mortgage 

You can apply for a Lifetime mortgage from age 55. It has no term length, and you don’t need to make any monthly payments. However, the interest accrued each month is added to the total loan balance. Interest is then charged on the new balance, meaning the amount you owe can grow quickly over time. This is known as compounding (or 'rolled-up') interest. Your mortgage is repaid when your home is sold after you pass away, you move into long-term care, or you sell your home.

As the cost of a Lifetime mortgage increases every month, the amount of equity available in the property will decrease over time. This mortgage could be ideal for someone who needs access to cash and has a low income, meaning they are unable to afford monthly payments and would like to stay in their home without needing to move. But this also means that less money is available for any beneficiaries (those named in your will as the receiver of your property), so it’s not suitable for everyone.

Retirement Interest-Only (RIO) mortgage 

There’s no maximum age for taking out a Retirement Interest Only (RIO) mortgage, and (despite the name) you don’t actually have to be retired to apply for one, but you do need to be at least 50 years old.

A RIO mortgage has no set date that you need to pay back the loan. Instead, you make monthly interest payments, and the mortgage balance is cleared from the sale of your home - usually when you go to live with a relative, move into long-term care or when you die.

Standard Interest Only mortgage

If you’re 50 plus and retired or retiring (or even if you’re still working), a Standard Interest-only mortgage could suit you. Unlike a RIO mortgage, you have an agreed set end date for when the original loan amount will need to be repaid. You make monthly interest payments throughout your agreed term (maximum 30 years) or until the eldest borrower’s 80th birthday.

To qualify, you must show your lender that you have a plan in place to repay the original mortgage amount at the end of the term. You could do this through selling your home or from investments or other assets in your name.

Standard Capital & Interest (repayment) mortgage

You may be eligible for a Standard Capital and Interest mortgage if you’re between the ages of 50 and 85, working or retired. Each month, you pay off some of the original loan amount(the capital), as well as the interest charge. While it’s usually more expensive than our other mortgages, by the end of the agreed term you will owe nothing and will own your home, assuming you keep up with all the repayments.

You will need to pass an affordability check to make sure you can keep up with payments.

This kind of mortgage could be suitable for your retirement if you want to:

• buy a new property
• remortgage an existing loan
• generate funds for home improvements, supporting offspring or for a dream holiday
• preserve your equity in your home