Nearly £2bn (£1.97bn)* in mortgages were taken out by borrowers over the age of 70 in the last year (to March 31 2024), shows a study by TWM Solicitors, the leading private wealth and family law firm.
TWM says that some older people have been taking out mortgages partly so that they can make inheritance tax (IHT) free transfers to their children and grandchildren.
TWM adds that this trend to make IHT-free transfers is also being driven by older borrowers who want to help the younger generation onto the property ladder. TWM also adds that older borrowers are also freeing up cash from their homes in order to deal with their extra living costs caused by the UK’s burst of high inflation as rising household bills have also impacted many pensioners.
Taking the example of a borrower who wants to help their children to improve their position on the property ladder, that borrower can take out a mortgage against the value of their property and gift the cash to their children. As well as providing an immediate benefit to the children by enabling them to purchase a property they would otherwise not have been able to afford, there could be a secondary benefit as well.
Providing the money is given at least seven years before the borrower’s death, no IHT will be due on this gift. When the property passes to the borrower’s heirs, the cost of the remaining mortgage is deducted from the property’s value, thereby reducing any IHT bill.
An increasing number of mortgage providers are now willing to lend to borrowers aged 70 and over, provided they can meet the necessary repayments on their debts. The wider range of mortgage products available for over 70s means rates are becoming more competitive.
David Lunn, Managing Associate within the Private Client team at TWM Solicitors, says: “For those looking to help the generation below, there may be merit in considering taking out a mortgage later in life. For those also considering how to protect as much of their children’s inheritance as possible, taking out a mortgage and gifting the money can be an effective part of IHT planning. However, careful planning is essential to ensure the numbers work for you.”
Borrowers over 70 considering taking out debt against their property must be aware of the potential risks. Borrowers should be certain they can make the monthly repayments after they retire. They should also be aware of the higher interest payments that could be incurred from taking out debt later in life and that those rates may rise over the period of the loan.
Adds David Lunn: “It is vital that potential borrowers assess all their options before taking on a mortgage later in life. Borrowers must also consider the total cost of the mortgage including interest and commission, and weigh up whether this is the best long-term solution especially bearing in mind that there is no guarantee of surviving for 7 years after making the gift.”
* Source: Data provided to TWM by the Financial Conduct Authority
