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Another £13bn in mortgage sales to over 60s in a year as borrowers aim to limit inheritance tax bills

by | Feb 20, 2024

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Mortgage sales to the over 60s hit £13.2bn in mortgages in the last year to (year-end September 30 2023) as older borrowers use mortgages to minimise their heirs’ inheritance tax, says Bowmore Financial Planning.

Borrowers who want to minimise the amount of Inheritance Tax owed on their estates can take out a mortgage against the value of their property to gift cash to their children. Providing the money is given at least seven years before death, no Inheritance Tax will be incurred on this gift.

Over-60s made up 6% of the value of all new mortgages sales last year 2022/23, up from 4.2% in 2021/22. Sales of mortgages to over-60s fell less than 1% from £13.3bn last year whilst overall mortgage sales fell 33% from £331bn to £220bn over the same period*.

 
 

Mark Incledon, CEO of Bowmore Financial Planning, says that mortgage sales to older people have remained buoyant because mortgaging a property remains a reliable way to reduce inheritance tax.

When inheritance tax is calculated after death, the value of the outstanding mortgage is subtracted from the value of the property. This can reduce the inheritance tax bill significantly – even to zero in some cases.

Mark Incledon: “Over the last few years, mortgages have become a very popular way for older people to avoid their heirs seeing a large percentage of their inheritance disappear in tax.”

 

“When you’ve worked for decades to pay off your mortgage, volunteering for another one might seem strange. The reduced inheritance tax bill can be an enormous gift to your children or grandchildren, however.”

“However, older borrowers do face risks retiring with a mortgage, like  being unable to make repayments once their income reduces.”

Mortgage rates have often been higher for older borrowers as lenders are less confident that they will be repaid in full. While there is no maximum age to take out a mortgage, many lenders have their own age limits. Lenders may ask for expected retirement income if the borrower is near retirement. 

Says Mark Incledon: “While taking out mortgages later in life has become more popular in the past few years, potential borrowers might struggle finding the right lender that is willing to work with them. Taking out a mortgage at, or near, the end of your working life comes with risks so you have to careful to make sure you have budgeted properly.”

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