Mortgages: the age problem.

Pensioners should be sitting pretty regarding mortgages shouldn’t they? After all, they should by now have completed their payments and be the sole owners of their homes. Sadly, for some 600,000 pensioners this is not true – they are still paying off their mortgages, and not just for a couple of years after retirement. For example, over 20,000 who still have to reach the final payment are in their 80’s.

Couple this with the research from the Prudential which reveals that almost 25% have insufficient funds to finance their retirement, and it becomes obvious that some serious problems exist. Having to find the necessary funds to cover the mortgage payments when on a fixed income inevitably means that some other parts of the living costs are not covered.

However, many pensioners would be pleased to be on a fixed income, provided that it was fixed at a point on the cost of living scale! When looking at the reality of an income which is usually increased annually, but by a niggardly amount which bears no relationship to the increases in costs generally (especially council tax), then the true effect is of a reducing income.

Inflation also takes its toll. True it is low at present, but even at 2.5% a year, the spending power of a fixed sum is down by virtually ¼ in just 9 years. So which way to turn? There are a few choices but none of them are particularly palatable. To provide funds for day to day living expenses it is possible to use the home as security for a re-mortgage up to the age of 75, but the interest rates are set at an expensive level. This is a route taken by many pensioners who can see no other way out of their problems, or are not prepared to take on the complication of other methods. Competition in the marketplace has resulted in more flexible products being available, and a lifetime mortgage may be rather more acceptable than it appears to be at first glance. It has the very positive appeal that it can solve the problems without the necessity to move home, and is worth investigating.

Equity release is another option which helps the homeowner to avoid the need to move, although there are usually conditions which have to be met before an agreement can be reached. For example, it is likely that the person wishing to release the equity on their house will have to be above a minimum age, and the house itself will have to exceed a minimum value. Also the value of the equity release will be only a percentage of the house value and some may find the figure to be disappointing. You would doubtless make your life a great deal easier when you bank the loan, but do not expect to live like a king! One advantage of equity release is that you remain the owner of a substantial part of the value of your house, and so will still have money which you can leave to your family.

Many will probably have contemplated taking in a lodger on a rent-a-room basis. This can work well but a lot depends on the lodger you get. Taking a stranger into your home is not easy, especially if you are of advanced age, and will require some give and take on both sides. Nevertheless, over 15% of pensioners would consider this as a way out of their financial problems.

You do need to carefully examine all aspects of taking in a lodger. Speak to your tax office to establish what the effect of the extra income would be on your taxable money. Also, if you receive benefits you may well find that the additional income has an effect on your entitlements.

If someone else (such as a mortgage provider or an insurer) has an interest in your house, you must get their approval before committing to anything. It would not do any harm to also have a word with the Citizen’s Advice Bureau – they would give sound advice, and could point you in the right direction should you need further information. If you are reading this and you are well below ‘pensioner’ age, you should take it as a warning – you could find yourself in this position unless you save hard for your pension and start doing so without delay. If you have been putting it off until you have ‘got more time’, you should realise that time is slipping by and you need to see a financial adviser and get things moving without further delay.