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In December's issue of Moneyfacts, David Baker, Managing Director of LIFT-Mortgages, interviewed Martin Yates, Senior Business Development Manager, about why lenders need to gain a better understanding of the lending into retirement mortgage market
If you haven't managed to grab a copy of the magazine, you can read the full interview below.
1.) When it comes to assessing affordability for a retirement interest-only mortgage how does this process differ from standard residential mortgages, and what income do you consider? How straightforward is this to assess?
When it comes to an interest-only mortgage, the main difference is assessing affordability of joint applicants. For example, the maximum loan is based on the income of the surviving borrower. At Newbury, we look for a minimum income per application of £30,000. This can be made up of pension payments, rental income, investment income, amongst others.
2.) How quick is the process for obtaining a retirement interest only mortgage, and what aspects can potentially hold up the process?
For a purchase, extra time to the process isn’t an issue, however, for a remortgage it can take a little longer. This is because the transaction requires the involvement of a solicitors. We always recommend that a borrower seek Independent legal advice during the mortgage application stage. This includes tax and benefit advice, Lasting Power of Attorney, and financial advice on the impact on income and savings of potential future care needs.
3.) What happens in the event of a customer no longer being able to afford repayments? How do you deal with this?
At Newbury, we only base affordability using non-earned income which is complimented by our common-sense lending approach. This means we will always ensure there is an advice process in place. This means that is unlikely the customer would find themselves in a difficult position. If it does happen, we are committed to working with the customer to devise a plan to help enable them to stay in their home.
4.) In terms of the property valuation, do you approach this differently to standard residential mortgages?
In short, no. The property valuation is identical to every other undertaken. When it comes to a true Retirement Interest-Only (RIO) mortgage, we do not require a minimum equity threshold in terms of monetary value, but instead have a maximum loan to value.
5.) Equity release products have become increasingly flexible in recent years, how do retirement interest only options compare in terms of flexibility (such as ability to overpay?)
Newbury’s RIO mortgage product gives the client flexibility. For example, it’s a 5-year discounted product, however, the early repayment charge (ERC) only applies during the first 3-years. The client is free to make overpayments of up to 20% of the original loan amount each year penalty free for the 3-year ERC period.
In addition, if a borrower’s situation changes, the product can be ported to a different property providing certain criteria is met.
6.) How does the increasing number of mainstream lenders coming into the market affect your plans as a business for the future?
A growing market is undoubtably a positive for consumers, and we do not expect the increase in market choices to be detrimental to our own business volumes. In fact, we believe a surge in competition will drive product innovation forward and push prices lower.
7.) What innovation do you expect to see in the market in the near future?
We have already seen a great deal of innovation in the retirement market over the years with lenders now see lending into retirement as the ‘norm’.
However, more product innovation in the intergenerational lending space is welcomed. For example, we have parents and grandparent helping the younger generation to get on the property ladder and we also see the younger generation helping elderly relatives stay in the family home. As we live for longer, these types of products will become mainstream; lenders need to be willing to adapt to this when necessary.
8.) What happens if the client lives longer than expected? Is there a ‘no negative equity’ clause within your products?
Newbury’s RIO mortgage product is a ‘termless’ mortgage. In addition, interest is not rolled up and the client services the monthly interest-only payments. By doing so, the borrower can continue to enjoy living in their home until they permanently move into residential care or pass away.
9.) What niche areas does Newbury cover that might make a broker use your products over some of your rivals?
It’s worth nothing that Newbury offers split terms and split repayment methods across all our mortgages to give customers greater flexibility. This is particularly relevant to those looking to borrow into retirement with the aim to assist loved-one's step onto the property ladder. This niche, in conjunction with joint mortgage-sole proprietor, can offer longer term loans for those where perhaps other lenders would cap the mortgage on the oldest applicants age.
Ultimately, our focus will continue to be, as it has for a number of years: to help people buy and stay in their homes. Be that retirees, first-time buyers, the self-employed, unusual properties or custom build, we remain as the mortgage lender who helps those who don’t necessarily tick all the high-street boxes. Flexibility and a common-sense approach to lending is key – no matter your client’s age.