Unlocking the golden years: Navigating Later Life Finance

'Later Life Lending' is the industry's phrase encapsulating the expanding range of mortgage products tailored for homeowners above a certain age. Some options become available from age 50, while others start at 55 or 60. Since the launch of Knight Frank Finance's Later Life Finance service in 2019, over 400 clients have been supported in their 'Later Life' borrowing needs.

How are we helping customers?

Let's delve into a real-life scenario to illustrate the impact of Later Life Finance. One client, nearly 80 years old, lives on his own in a picturesque grade II listed country house worth around £3 million. Despite being asset-rich, he found himself cash-poor and reluctant to leave his cherished home. His goal was to tap into equity to bolster his income and address essential roof repairs. A complicating factor was the lingering roof repairs from an existing insurance claim, resulting in a zero valuation.

This created a catch-22 situation: completing the roof repairs required raising a mortgage, yet he couldn’t obtain the mortgage without a fully mended roof.

The solution

We initially looked into leveraging a bridging loan to cover the cost of the repairs. This seemed like a logical approach as the loan could be repaid by raising a lifetime mortgage once the roof was restored. However, we felt uncomfortable about the additional cost the client would incur from arranging a bridging loan, which would eat into the equity he was trying to preserve, to provide him with the income he needed long into the future. 

We explained the client's predicament to the lender Aviva and asked them to get a valuer to give a valuation as if the roof was fully repaired and consider what they could do to protect themselves but also facilitate lending to help the client out of this situation.

After ongoing negotiations, Aviva agreed to proceed, offering a lump sum for repairs and a drawdown facility to supplement the client's income. While various conditions applied, the client was thrilled to resolve the roof issue and continue enjoying retirement in his beloved home.

This is a great example of doing the right thing for our clients. Instead of steering them towards a bridging loan, we protected his equity, providing the best outcome for his future.

Understanding 'Later Life Finance'

Later Life Finance encompasses a broad range of products for clients aged 50 and above, and our average client age is approximately 75. The array of products includes:

Lump sum Lifetime Mortgages: A single lump sum borrowed for various purposes, with the option for interest to roll up, eliminating regular payments unless chosen by the borrower. There is no fixed term, so the mortgage can continue for the rest of the borrowers life if necessary. It can be repaid or transferred if the borrower wants to move home in the future.

Drawdown Lifetime Mortgages: Alongside the lump sum described above, borrowers can benefit from a flexible facility allowing them to draw funds as needed, especially useful for topping up income or anticipated expenses.

Payment Term Lifetime Mortgages: Similar to both of the above, but with mandatory payments during an initial period, typically until the borrower reaches 75. This can allow borrowers access to higher loan amounts at the outset.

Retirement Interest Only (RIO) Mortgages: Similar to an ordinary Interest Only mortgage, but with no fixed term. Repaid on death or if the borrower(s) move into care.

Term Interest Only (TIO) Mortgages: Similar to regular Interest Only mortgages, with criteria tailored for those in retirement.

Private Banking facilities: Specialised banking and mortgage services from private banks supporting customers transitioning into their later years.

Regular Mortgages: An increasing number of lenders are extending age criteria or eliminating age limits.

Bridging loans and Second Charge mortgages: Access to short-term borrowing or additional funding over and above an existing mortgage, gaining popularity among older borrowers who want short term funding when moving home.

Why is this market growing?

The need for mortgage borrowing extending later in life has been driven by factors including a decline in pension provisions, longer mortgage terms, improving life expectancy, a desire to remain in homes post-retirement, and changing attitudes toward borrowing post-retirement.

The 'Bank of Mum and Dad/Grandma and Grandad' increasingly supports first-time buyers struggling to enter the property market. At the wealthier end, the unchanged Inheritance Tax regime since 2009, coupled with doubled property values, exposes significant property wealth to IHT. Affluent homeowners are strategically borrowing to redistribute their property wealth to younger generations, reducing potential IHT and creating economic liquidity.

In navigating Later Life Finance, homeowners can unlock the potential within their homes, ensuring a secure and enjoyable retirement.