Buying a new home when over the age of 60
6 min read
As you approach and plan your retirement, the thought of borrowing can be confusing, and affordability checks might seem complex. However, there are a number of financial products available if buying a new home is of interest as you approach your later years.
Here, we look at the reasons why you may want to buy a new home over the age of 60 and the various options on offer.
Why buy a new home over the age of 60?
Whether you’d like to move closer to family and friends, to a different part of the country completely, or are simply finding that your current property doesn’t meet your changing health requirements, there are a number of reasons why you may be considering buying a new home over the age of 60.
One reason for moving home in retirement is downsizing. You might be feeling like your current space is more than you require, perhaps if children have flown the nest and a smaller property would be more manageable.
Some over 60s also decide that they would like to purchase a second home to escape to in the summer months or use as an extra base for family.
Maybe you even have or anticipate that you will have adapting needs that would be best met by moving elsewhere. Although there are options to help you raise the funds required needed to improve your current home, some choose to buy a more accessible property at some point in their later years, such as a bungalow or purpose-built retirement flat.
Ways to buy a new home over the age of 60
If you're aged 60 and over, there are several ways to buy a new home. Mostly, the options will vary depending on the value of your current property versus the cost of your new home.
In some cases, such as downsizing, where the new property is often less expensive than your current property, you might be able to buy your new home by clearing your existing mortgage and using the proceeds from the sale of your current property.
However, you may need to raise additional funds, such as if the new property is a second home, more expensive than your current property, or if you have a remaining mortgage. Taking out a new mortgage product could help if this applies to you, and there are a variety available. Each has different criteria and the best product for you will be affected by a number of considerations, such as your existing retirement income, any savings you may have and wish to utilise, and the inheritance you’d like to leave.
When you purchased your current home, you most likely did so with either a capital repayment mortgage or an interest-only mortgage. While many traditional mortgages have upper age limits, this will be determined by the lender and there are still possibilities for over 60s.
Opting to buy a new home with a traditional mortgage may be a suitable choice if you are still in employment or have a guaranteed source of income in retirement. This is because you will have to be able to keep up with the required repayments. If you fail to keep up with monthly payments, there will be a risk of losing your home.
The amount you can borrow will depend mostly on the property value and your income, and there will also be affordability checks.
Retirement Interest-Only Mortgage
Another option to consider when buying a home over the age of 60 is a Retirement Interest-Only Mortgage (RIO).
A RIO works in a similar way to a conventional interest-only mortgage but is available only to over-50s. You borrow a single lump sum against the value of your property and are committed to repaying the interest through monthly payments. Your eligibility will be determined largely based on the value of the property and your retirement income.
Because of the requirement to make repayments there will be affordability checks. However, unlike a capital repayment mortgage, you are only required to pay interest, so a Retirement Interest-Only Mortgage may be a more affordable solution.
The initial amount of the loan is then only paid back when the last surviving homeowner dies or moves into permanent residential care, usually with the sale of the home. You will also retain full homeownership throughout the course of the mortgage, providing you keep up with the required repayments.
It is important to bear in mind that any option that involves borrowing against the value of your home will reduce the value of your estate in the future. Your home may be at risk if you do not keep up the required monthly payments and it could affect your entitlement to means-tested benefits.
A Lifetime Mortgage is the UK's most popular equity release plan. However, most people are unaware that it can also be used to purchase a property.
One of the benefits of using a Lifetime Mortgage to purchase a property when over the age of 60 is that there are no required repayments, although there is often the option to make these voluntarily should you wish. The balance, including interest, is instead usually repaid through the sale of the property when the last surviving homeowner dies or moves into long-term care.
Like a RIO, a Lifetime Mortgage will reduce the value of your estate and could affect your entitlement to means-tested benefits. However, it is a requirement that you seek advice before taking out a Lifetime Mortgage, to ensure you get the product that is right for you. A fully qualified mortgage adviser can provide you with a personal illustration to show how the cost will amount over time.
Through the Royal London Later Life Lending Service, provided by Responsible Life, you can speak with a fully qualified mortgage adviser. This no-obligation conversation can help you to better determine what later life mortgage option could be best for your plans to buy a new home. An adviser will also be best placed to help you understand any associated risks and available features to help mitigate them.
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