If you’re looking for a home loan, but you’re near or even in retirement, what are your options?
Last week a press release landed in my inbox that at first seemed like the usual pension-firm spiel put out to drum up business – telling us all that we aren’t saving enough for retirement and that we need to hand over more of our cash to pension providers. But this one contained a topical new angle on the old sales pitch – the warning that if you don’t own your own house, you will need a far bigger pension.
Helen Morrissey of insurer Royal London reckons you’d have to have an extra £185,000 in your pension pot (on average) to fund your monthly rent in retirement, compared with someone who had already paid off their mortgage. This is, of course, a gloomy prospect for a younger generation who already feel that they’ve been hard done by on both the property and the pension front.
On that score, the moderately good news is that house prices in the UK do show some signs of wobbling right now (particularly in London, the most overpriced part of the country), and also, if you’re still under 40, then there is a pretty generous savings solution open to you that your older peers can’t access – see the column for more.
But what if you are rather older than 40 and getting worried about a time limit on buying property (or buying a bigger one and extending your mortgage period in the process)? There’s good news on that front too. Most lenders have a cut-off age on mortgage loans of 70 or 75. But several are now raising these limits. Last week challenger bank Aldermore said it would allow people to hold one of its mortgages until age 99.
The Family Building Society is also increasing its maximum “end-of-mortgage-term” age to 95. Loughborough Building Society and 14 other building societies, including Bath, Cambridge, and Saffron have scrapped upper age limits entirely (so you can technically take out a 25-year mortgage at any age), while Nationwide has plans to launch an interest-only retirement mortgage. Finally, the Post Office offers interest-only loans to a maximum age of 80, and repayment up to 90.
These loans are largely being viewed as alternatives to equity release – options for those who want to borrow money perhaps to help their children raise deposits of their own. But there’s no reason they can’t be used to buy a new house altogether. Just be aware that affordability criteria are typically tight, and the loans also require large chunks of equity – 40% minimum in most cases.
Save for a house or a pension
If you are aged between 18 and 40, you may be struggling to prioritise where to put your savings – should you invest in your pension fund, or keep saving for a deposit on a house? The good news is that there is now a savings option that offers the flexibility to do both and to receive decent tax breaks in the process. The lifetime individual savings account (Lisa) has been around for a while now, but so far the uptake has been pretty poor.
Yet it represents a good solution to the savings dilemma. You can save up to £4,000 a year, with any interest earned or investment growth tax-free. You’ll then get an annual 25% taxpayer top-up each year until you turn 50.
This money can be used either to buy a first house or, after you turn 60, to help fund your retirement. Taking the Royal London target as an example, a 22-year-old who saved the full £4,000 a year would have £185,000 saved before they turned 45 (assuming an annual growth rate of 5%). They could then choose whether to leave the money invested to help cover their rent in retirement (if necessary), or use it to help them buy a house, leaving them with another 25 years to be mortgage-free by the time they turned 70.
Pocket money… beware this property fraud
• Potential homebuyers are being warned to “make sure that the person selling to them is actually the property’s owner”, says Annabelle Williams in The Times.
Two recent court cases have revealed that criminals are finding out who owns vacant or tenanted properties before forging identity documents and selling the houses. One developer, P&P, lost over £1m after buying a house in London, only to discover the fraud weeks after completion “when the true owner walked past the house and spotted builders carrying out renovations”. In another case, a developer lost £1.1m when it tried to buy a London house from a “bogus vendor”. The money was transferred to China; the fraudsters vanished with the cash.
“These properties tend to be quite high value, with no mortgage, tenanted or unoccupied and with overseas owners,” Niall Innes, a partner at law firm Mills & Reeve, told The Times. “Also, beware really great bargains. If the price looks too good to be true, it may well be.” Sign up with the Land Registry’s property alert scheme, which will email you if anyone tries to sell your house.
• Halifax is closing its Young Saver account in July, says Adam Williams in The Daily Telegraph. The account has been popular with many parents, thanks to a 2% interest rate on balances up to £20,000.
Balances will be transferred to a Kids’ Saver account, which pays 2% on up to £5,000, then 0.2% on any extra. Parents may want to look at Nationwide’s Smart Limited Access account instead, which pays 2.5% on up to £50,000, while Holmesdale Building Society pays 2.25% on up to £25,000.
• App-based bank Monzo has been named a “best buy” for current accounts by the Ethical Consumer, says Rupert Jones in The Guardian. The consumer body, which rates companies and products based on their scores in areas such as people and politics, calls for banks to “adopt clear policies to avoid lending to ‘problem sectors’ such as coal and tobacco, and provide full transparency about who they lend to and why”. Monzo joins Triodos Bank, Ecology Building Society, Charity Bank, Ecclesiastical Insurance, Royal London and Aviva in getting the thumbs up.