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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
Around 25% of people in the UK have a mortgage, and with the number of products available, along with regular changes in rules and rates, there’s a lot of room for confusion. Our experts have looked at the most common mortgage myths and debunked them for you, so you can be sure you’re making the most sensible decisions for you and your family.
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The reality: This is a very common misconception – and it’s not necessarily true.
Antony Smith, independent financial adviser at Providus, says: “Provided you plan carefully, you can continue paying your mortgage in retirement. “Some lenders will even use your pension income, or the value in your personal pensions and investments, as proof of you having enough funds to continue paying off a mortgage once you’ve retired.
“The key is to ensure you have enough money to fund your mortgage as well as your desired lifestyle once you stop working.” Different lenders have different affordability criteria, so it’s worth shopping around.
Richard Dana, founder of award-winning mortgage broker Tembo, which partners with Saga Mortgages, agrees. “Some customers actively decide not to pay down their mortgage before they retire to enable them to have more cash for living.”
The reality: Many lenders will consider older borrowers or family members as joint applicants or supporters of applications, provided income and affordability measure up.
Richard Dana tells us: “People in their 50s, 60s and beyond can often play a meaningful role in helping loved ones buy a property, whether that’s through shared borrowing, structured family support or tailored mortgage arrangements.
You also need to consider that downsizing involves its own set of expenses – such as moving costs, solicitor’s fees and stamp duty (or land transaction taxes in Scotland and Wales) – so it’s not necessarily a cheap option.
Smith says: “You can release equity from your home using a lifetime mortgage. Some lenders will also allow you to guarantee your children’s mortgage payments or use your own income to support their application without you having to be an owner of their property.
“Other schemes allow you to use the equity in your home as additional security. Just remember to do your research so you choose an option that suits your situation.”
The reality: That may have been true some years ago, but things have changed. “Both mainstream and specialist lenders will consider offering mortgages to older people – even into their 70s or 80s,” according to Smith.
“The key is to demonstrate that you can afford to pay back the debt, through pension income, savings and investments that you can draw down from.” Dana has first-hand experience of helping older clients: “We’ve recently helped a customer purchase their first home aged 67.
“The opportunities to borrow into retirement have really developed over the past 10 years, so it is really important to seek advice to see what your options might be.”
The reality: While this is an understandable fear, if you haven’t made a provision to pay off the capital part of the mortgage, it isn’t always the case. Smith advises that you approach this type of mortgage with caution.
“While you should always have a plan to repay your interest-only mortgage, if you do find yourself in this position, it’s vital to speak to your lender to find out your options,” he says. “They may be willing to extend your mortgage term, which will buy you some time.
Or you may be suitable for a lifetime mortgage, provided you have enough equity available in your house. Either way, you should maintain your interest payments and keep your lender updated with progress to avoid facing an unexpected repayment demand, which could force a distressed/undervalue sale.”
There is another option you can consider with your mortgage provider, says Dana. “A relatively new product, called a retirement interest-only mortgage, enables over-50s to take out a mortgage with no end-term date. The repayment only occurs if the house is sold or when the owners of the property die.”
The reality: Not necessarily, according to Dana. “Lenders consider a wide range of income sources, including pensions, dividends, rental income and assets, and many products are designed specifically for people transitioning from work to retirement.
He adds: “It’s really important to get professional advice, particularly if you are taking out the mortgage while you’re still working, but you’re expecting to transition to a retirement income during the term of the mortgage.”
The reality: According to Smith, in the right circumstances releasing equity from your home can be a workable option.
“If you want to make a gift to your children or grandchildren but don’t have access to enough liquid funds, releasing money from your house could be the right move for you,” he says. This can be particularly beneficial if your estate is over the inheritance tax threshold.
“Equity release can also be used to fund home improvements, which may in turn add value to your home or make it easier to sell. But you should proceed with caution and ensure you make the right decision based on your unique circumstances,” Antony warns.
Dana agrees: “Although the market is well-regulated, equity release is an expensive form of borrowing, particularly in the current interest-rate environment. As a result, the value of the estate you leave to your loved ones can reduce much more quickly than many people expect, and the interest you pay over time can be substantial.
“I would strongly encourage people to speak not only with an equity release specialist, but also with an independent mortgage broker to explore other possibilities. Depending on your circumstances, options such as downsizing or remortgaging may be more suitable.”
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