55+ Mortgage case studies
The Lewis’s - Gifting to family
Mr & Mrs Lewis are aged 69 & 72 and have no mortgage currently on their existing residential property. Their children have left home but they want to raise £195,000 as a gift for one of their children and help them purchase a residential property. The property is currently valued at £350,000 and they want a mortgage term of 20 years.
They have chosen downsizing as their preferred repayment strategy, with them planning to move into a smaller property in the same area at the end of the mortgage term.
Both Mr & Mrs Lewis are still working stating they plan to do so until the age of 80. They are earning a combined employed income of £19,000.
The applicants are both drawing state pensions and also in receipt of private defined benefit pensions of £11,000 & £13,000 respectively, which both have 50% spouse benefit. Additionally Mr & Mrs Lewis have combined cash savings of just over £200,000.
The 55+ mortgage could be offered for the loan amount requested, providing flexibility to release equity to assist a family member, as well as enabling them to retain savings they have accrued for their retirement.
Why does this case work?
- Ages qualify because youngest borrower is 69 and a term of 20 years takes them to 89 which is within the 55+ mortgage criteria age range (based on the youngest borrower).
- Downsizing is an acceptable strategy because there is over £150K equity left in the property after the loan has been taken out.
- Affordability works because both Mr & Mrs Smith have a good amount of income having both employment and retirement income, the defined pensions have a 50% spouses benefit on each meaning they could continue repayments in the event of their spouses demise.
- As they both undertake part time administrative office based duties in their business roles we would consider it acceptable for them to work until age 80 and therefore can take this income fully into account when assessing affordability.
The Smith’s - Replacing interest only borrowing
Mr & Mrs Smith are aged 78 & 63 and are coming to the end of their interest only mortgage term. They want to borrow £80,000 on their property, to enable them to clear their existing mortgage and clear some unsecured borrowing. The property is currently valued at £240,000 and they want a mortgage term of 30 years.
They have chosen downsizing as their preferred repayment strategy, as they wish to remain in their existing property for as long as they are able, in order to remain close to family.
Both applicants are currently retired with Mr Smith in receipt of a full state pension and Mrs Smith due to receive a full state pension at 65.
Additionally Mr & Mrs Smith are in receipt of private defined benefit pensions for £25,700 & £15,000 which both have spouse benefit of 50%.
The 55+ mortgage could be offered for the loan amount requested providing them with the flexibility to continue interest only mortgage payments and to remain in their current property and remain around their family.
Why does this case work?
- Ages qualify because the youngest borrower is 63 so a term of 30 years takes them to 93 which is within the 55+ mortgage criteria age range (based on the youngest borrower).
- Downsizing is an acceptable strategy because there is more than £150K equity left in the property after the loan has been taken out.
- Affordability works because both Mr & Mrs Smith have a good amount of pension income from both state pension and defined pensions with a 50% spouses benefit meaning one could afford repayments in the event of their spouses demise.
The Jones’s - Max loan to value
- Mr & Mrs Jones are aged 75 & 66, both self employed in administrative positions for a London firm that they own and run, they are both still working and intend to retire at aged 80. With an outstanding mortgage of £100,000 the Jones’s wished to borrow £500,000 in order to clear their existing mortgage and also £50k of existing debt, along with gifting the remains to their children for property purchase. Their property is currently valued at £1.1 million, they requested a 5 year term on a 2 year fixed rate of 3.49%. They have chosen downsizing as their preferred repayment strategy, as they wish to remain in their existing property for the next 5 years and will then look for something smaller.
- Both applicants earn self employed income £105,000 (Mr) and £35,000 (Mrs), on retirement both will receive a full state pension and they are also in receipt of combined rental income of £33,000 per annum most of which is currently paid to Mrs Jones.
- The 55+ mortgage could be offered for the £500,000 loan amount requested providing the Jones's with the flexibility to pay off their mortgage and debts and so be better off month to month financially, whilst also providing an early inheritance and the peace of mind that their children are able to get onto the property ladder thanks to their help.
Why does this case work?
- Income is acceptable as both Mr & Mrs Jones have good levels of self employed income, with Mrs Jones receiving the majority of the rental income on top of her salary, meaning the case remains affordable for both customers for the 5 year term requested.
- As both Mr & Mrs Jones undertake administrative/office based duties in their roles, we consider it acceptable that they could work until aged 80 and can therefore take 100% of this income into account.
- Downsizing is an acceptable strategy because there is more than £150K equity left in the property after the loan has been taken out. As the property was worth over £1 million it was referred to property underwriters who were able to confirm its acceptability.
Ms Monk - facing potential repossession
Ms Monk, a 69-year-old single lady had been in touch with her mortgage adviser, she was extremely distraught having discovered that her mortgage provider was about to start court proceedings against her for the re-possession of her home.
The term on Ms Monk’s existing interest only mortgage ended in 2012 when she was 65, she still owed £155,000. Her provider had allowed monthly repayments to continue until very recently in the hope she could find a new lender which meant her credit record had not been affected, but as other lenders had not been forthcoming due to age and circumstances Ms Monk had now been advised that the arrangement could not continue.
Extending the term of the mortgage was not an option due to Ms Monk’s current age and also her providers affordability criteria which she no longer met.
Ms Monk’s mortgage adviser got in touch with Hodge, confirming Ms Monk’s situation and requesting information on the 55+ residential interest only mortgage.
Ms Monk was still working, earning £28,000 as a self-employed legal consultant and also in receipt of a public-sector pension totalling £11,500 per year. Additionally, Ms Monk had a personal pension fund of £123,000 and a state pension she had deferred but that could be taken if required.
The total loan requested was £155,000 over a ten-year term, to be used to clear in full her existing mortgage, allowing Ms Monk to remain in her home and regain peace of mind. Additionally, the loan would allow Ms Monk to reduce her monthly mortgage repayments from £563 to £402 (based on the 55+ 2 year fixed rate product and an interest rate of 3.10%).
Ms Monk’s property was valued at £400,000 with downsizing after 10 years being selected as her chosen repayment vehicle as she planned to retire and move closer to family at around age 80.
Based on Hodge’s 55+ criteria we were able to help. A loan of £155,000 was approved over a 10-year term with Hodge taking into account not only her self-employed income but her pension income both current and future.
Why does this case work?
- Due to the nature of Ms Monk’s work which was mainly office based it was considered acceptable that her self-employed income could be taken into account until aged 80, producing two years SA302’s as evidence to support her income.
- Ms Monk’s current and additional pension availability could be used for affordability purposes, her current ‘in payment’ pension being used as income, supported by her ability to draw on both her state and personal pensions if she decided to give up work prior to the term of the mortgage ending. Bank and Pension statements were used to evidence her payments and projections.
- The loan size requested was agreed as it was less than 60% of the total property value (the maximum LTV that Hodge can consider for 55+ is 60%). Downsizing was an acceptable repayment strategy as there was more than £150K equity left in the property after the loan had been taken out.
- Hodge were very happy to have helped restore this customer's peace of mind in a situation where she thought there were simply no options available. Our personal approach to underwriting and our understanding that there is no such thing as a typical customer or a typical retirement meant that we could assist where many other lenders would not.