Written by Jennifer Stevenson
4th March 2019

Mortgages for Last Time Buyers

Thirty-one percent of homeowners over 55 say their homes are now too big for them. Is this you: ready to think of downsizing, but needing to find the finance – and the right home to move into.

There’s been lots of government and property industry focus on FTBs: the bottom of the housing ladder first-time buyers. Government initiatives have included an amnesty on stamp duty, the deposit top-up Help to Buy scheme, and Help to Buy ISAs.

But what about the other end of the housing market?

There’s been a fair amount of tut-tutting about older homeowners rattling around in empty-nest homes that are now too big for them.

They’re exhorted to clear out their spare bedrooms and potting sheds and downsize to free up housing stock for growing families.

Are you property-rich, cash-poor?

This is the archetypal assets-rich, cash poor generation. They’re sitting on a collective £1 trillion-worth of housing wealth, according to Legal & General and the Centre for Economics and Business Research (Cebr).

They have two or more empty bedrooms in their homes, and a third of them say their home is bigger than they need.

But for many, this apparent property wealth could be about to disappear when they come to the end of an interest-only mortgage, and the value of their home is insufficient to repay the original loan, or to repay the loan and leave enough left over to buy somewhere else to live.

Money might be tight

The average weekly income of this generation of over-55s is £632: significantly less than the average UK household income.

  • 13% are looking to downsize to free up money to fund their retirement
  • 4% say they can no longer afford their own home
  • 5% would like to give money to children or grandchildren

Freeing-up the property market

It’s clear that punitive spare bedroom taxes on social housing tenants aren’t creating the downsizing-for-upsizing movement that could help with Britain’s housing crisis.

But now over-55s homeowners are called the LTBs – last-time buyers. And a variety of new housing initiatives are being developed to help them relocate, including equity release finance and a range of more flexible retirement interest-only (RIO) mortgage option.

Are you thinking about downsizing?

Older homeowners are increasingly flexible about the idea of relocating: the number considering downsizing has grown from under a third in 2014 to nearly 40% last year.

Legal & General’s 2018 report revealed there are now 3.1 million over-55s households who are looking to downsize in the future.

And they don’t think it’s such a good idea to keep putting it off. This generation now thinks the optimal age for downsizing is 65-69, compared with age 70+ in the same report four years earlier.

What do you want to move to?

Older buyers’ requirements aren’t unreasonable: for most it’s a two-bedroom, easy-access home near to family and friends. Here’s what most are looking for:

  • Two bedrooms (62%)
  • Bungalow / single level property (45%)
  • A mixed community rather than a retirement village (37%)
  • Not too small (they will miss the spare and storage area of their current home)

In terms of location, when you’re older and anticipating reduced mobility, LTBs have fairly clear requirements:

  • 26% want to be near family and friends
  • 49% want to stay within five miles of where they currently live
  • 16% want access to shops
  • 14% want access to a GP or healthcare facilities

What’s stopping you moving?

A degree of inertia, and sentimental attachment is understandable, but that’s not the most important reason why older home-owners don’t downsize:

  • 24% don’t want to leave a family home (45% of LTBs have lived in their house for 30 years or more)
  • 49% can’t find somewhere they want to move to
  • 29% say that suitable properties are just too expensive

What will help you downsize?

1 Finding the right kind of home to move to

Legal & General believe that “the lack of good quality later living housing is the fundamental barrier to Last Time Buyers making the decision to move.” They maintain that one of the unintended consequences of the government’s Help to Buy scheme has been a distortion in the land market.

That’s a building industry issue that LTB homeowners aren’t able to fix on their own.

But in the more immediate future it’s possible that the much-lamented “death of the high street” could actually open up possibilities for empty shops to be turned into conveniently city-centre homes for older residents.

2 Finding the right finance

Locating the perfect home in the right location is no use if you can’t afford it.

  • Are you one of the 20% of UK homeowners who will still be paying off a mortgage after you’ve stopped earning?
  • The reason might be high house prices when you purchased, or getting onto the housing ladder later in life
  • Do you have an interest-only mortgage that’s coming to the end of its term?
  • 2017-2018 was the first of three “peak periods” identified by the Financial Conduct Authority when large numbers of interest-only mortgages matured.
  • The other two projected crunch-points are 2027-2028, and 2032.)

What are your finance options?

With many home owners living longer, continuing to work for longer, and wanting to stay in their homes for longer, there is now a wider variety of funding options:

1 Retirement Interest Only (RIO) mortgage

Most people who bought their home with a low-cost, interest-only mortgage were encouraged to take out endowment policies which would repay the capital at the end of their mortgage term.

But many of those endowment policies massively underperformed, resulting in many people facing repossession of their homes.

You now have the option of remortgaging your home with a repayment term extending past your projected retirement age.

Previously, this was rarely possible, but last year the Financial Conduct Authority (FCA) eased the regulatory restrictions on RIO mortgages for older borrowers:

  • Mortgages extending up to the age of 99
  • Loans are repaid when the mortgage holder dies, sells their house or moves into long-term care
  • Interest only paid each month = lower monthly repayments
  • More likely to have some equity to leave as an inheritance, or to pay for long-term care

2 Equity release

Also known as a Home Reversion scheme

  • You sell all or part of the value of your home to a reversion company
  • You get a lump sum as cash, or you may be able to receive it as regular income
  • You continue to live in your home as a tenant, possibly paying a small amount of rent
  • The reversion company sells your home when you die, or move into long-term care

3 Lifetime mortgage

This is a type of equity release:

  • You retain ownership and can stay in your home
  • You can borrow a lump sum, or periodic payments
  • Either no monthly repayments – the interest is rolled up and added to the total loan value
  • Or you pay interest monthly, and ad-hoc capital repayments
  • You can ring-fence some of the value of your home, to leave as an inheritance for your family
  • The lender will expect you to maintain your home in good condition
  • The loan is repaid when the mortgage holder dies, or they move into long-term care and the house is sold
  • Any remainder after the sale can be used to pay for your care, or goes to your beneficiaries
  • A no-negative-equity guarantee from the lender ensures that, if the sale of your home is not sufficient to repay the debt, your beneficiaries will not have repay more

Check out the Last Time Buyer options available to you:

Retirement mortgage options

Equity release and Lifetime Mortgage options