Increased use of later life lending options, including modern lifetime mortgages, will help address financial wellbeing issues for over-65s with outstanding conventional mortgages, Key Advice, the UK’s leading equity release adviser, says.
It estimates around 26,000 over-65s with outstanding mortgages died last year creating potential problems for any partners and the beneficiaries of their estates who will have to clear the outstanding mortgage or continue payments.
Industry data shows that around 28% of inherited estates include properties which still have an outstanding mortgage attached. More than 500,000 retired people are estimated to have outstanding mortgages.
Bereaved partners could be at risk of repossession if they cannot maintain monthly payments on the outstanding mortgage. Most mortgage lenders offer grace periods of between three and six months following the death of the mortgage holder but interest continues to accumulate.
Options for bereaved partners include remortgaging (including using a lifetime mortgage) or selling the home and downsizing.
Key believes increased use of later life lending options, including lifetime mortgages earlier in the lending journey, as part of a holistic financial planning strategy rather than a last resort, should be a major focus for advisers in general and mainstream mortgage advisers in particular. It stresses the importance of having comprehensive conversations with customers and their families, with advisers needing to look beyond their specialisms or scope of advice and offer all options in order to deliver consistently good outcomes – including through the use of trusted referral relationships with other advisers.
Using equity release in the appropriate circumstances will remove any worries about repossession or negative equity implications for the estate. Modern lifetime mortgages enable customers to continue making payments if they want to, but, as with conventional mortgages, assessment of affordability is essential as part of the advice process to ensure the right option is recommended.
Will Hale, CEO Key Advice & Air, said: “Financial wellbeing is at the core of successful long-term financial planning and particularly important for over-65s with outstanding mortgages. Advisers need to continue to engage with older customers and their families and consider all options in order to deliver good outcomes in line with Consumer Duty obligations.
Later life customers should not be worrying about the risk of repossession but that is a potential risk as the number of over-65s with mortgages continues to rise and they need solutions that enable them to make payments, to continue to manage their cost of borrowing, whilst allowing for flexibility to maintain their standard of living even when circumstances such as ill health or reduction in employed income may happen unexpectedly.
Mainstream mortgage advisers need to recognise the innovation that has taken place in the lifetime mortgage sector and ensure that all options are considered when dealing with over-50s customers.
Payments must be affordable, not just according to lender eligibility but with individual risk appetite in mind, and customers must not be placed in products which may be unsuitable for their current circumstances or foreseeable future changes in their situation. Customers need to be able to sustain their financial commitments and security/certainty can be a key consideration, often meaning that the product offering the lowest headline rate may not always be the most appropriate.”
