An increase in life expectancy has meant that Britain’s ageing population is starting to make up a sizeable part of the population. According to government statistics, there were 10 million people in the UK over the age of 65 in 2010; this figure is set to nearly double by 2050 to 19 million.


Despite their increasing prevalence however, this demographic frequently faces age-biased lending criteria, often making borrowing difficult. Tighter rules on affordability introduced in 2014, have meant that lenders will often require loans to be repaid by the age of 70 or 75.


Lifetime Mortgages currently only make up a small part of the mortgage market, but figures released by the Equity Release Council suggest that they are increasing – up 21 per cent in the first quarter of 2016 when compared to the same period of 2015. Mainstream lenders have also started offering products that are more appealing to the older borrower. Halifax and Nationwide, two of the biggest lenders, announced in May that they were extending the age limit by which a borrower must pay off a mortgage.


Cost will always be the most important factor when judging the merits on these borrowing options: mortgages typically have a lower rate of interest, of around 1.3% to 2.3%, depending on the length of the term, whereas Lifetime Mortgages typically have an interest rate nearly double this.


Those in their sixties are therefore often encouraged to take out a mortgage as opposed to an equity release loan – the longer you live the more interest you are likely to accumulate, meaning a smaller pot for the beneficiaries of your estate.


There are however advantages to Lifetime Mortgages, which explains their growing popularity. Primarily, borrowers do no risk being forced from their home, unlike a mortgage where a failure to keep up with repayments risks repossession. In addition, there is an agreement among Lifetime Mortgage lenders that no more than the value of the house can be owed. Furthermore, the introduction of a new hybrid product, which allows interest to be repaid to reduce the overall debt, also makes this an appealing option.


Given the increasing longevity of potential borrowers, Lifetime Mortgages will increasingly come into focus in the future.


If you would like to discuss the options available to you as you approach retirement or are already retired please contact the One Stop Finance Team


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