Mortgages for over 50s - all you need to know

What types of mortgage are there?

There are several types of mortgage however all tend to fall into either the fixed rate or the variable rate category. This includes:

• Fixed rate mortgage
• Standard variable rate mortgage
• Tracker mortgage
• Discount mortgage
• Capped mortgage
• Offset mortgage

Here’s how each one works.

Fixed rate mortgages

With a fixed rate mortgage your interest rate remains the same for the length of the deal, regardless of whether interest rates change. Therefore, you’ll know exactly how much you are paying during the fixed rate term and you won’t have to worry about rising interest rates.

However, if interest rates drop during your fixed period, you will continue paying your fixed rate which could be higher. Also because of the certainty, interest rates tend to be higher on this type of mortgage.

Standard variable rate mortgage

With a variable rate mortgage, your interest rate can go up and down. Each lender has their own standard variable rate which typically follows the Bank of England’s base rate. The variable rate is also usually the rate you are switched to once your fixed, tracker or discount mortgage ends.

Tracker mortgage

A tracker mortgage tracks another rate which is usually a percentage above the Bank of England base rate. This means that just like a variable rate mortgage, the interest rate you are charged during the length of the tracker deal can go up and down.

To prevent the interest rate from rising too dramatically, some tracker mortgages are capped. This means there will be a limit to how high your interest rate can rise.  

Discount mortgage

Discounted mortgages are usually set a percentage below the lender’s standard variable rate for a set period. It is therefore a type of variable rate mortgage which means the amount you pay can go up and down.

Capped mortgage

Capped mortgages are variable rate mortgages with a difference. They guarantee your interest rate will not rise above a certain percent. Interest rates on capped mortgages tend to be higher than tracker or discount mortgages however you have the reassurance that your monthly payments won’t exceed a certain level.

Offset mortgage

With an offset mortgage your savings are used to reduce the amount of interest you are charged on your mortgage. For example, if your mortgage is £100,000 and you have £15,000 in savings, offsetting your savings against your mortgage would mean you only pay interest on £85,000.

Using your savings this way means you can either lower your monthly payments or reduce your mortgage term. You just need to have your savings and mortgage with the same bank or building society.

Later life mortgages

In addition to variable and fixed rate mortgages, some lenders also offer a range of later life mortgages.  Designed for homeowners aged 55 and over, these later life mortgages give older borrowers the chance to unlock equity tied up in their home;

Retirement interest only mortgages

With this type of later life mortgage, you only make monthly repayments against the interest accrued on the loan. The capital is then paid from the sale of your property, once you have died or moved into long term care.

As you are only repaying the interest monthly, the repayments on retirement interest only mortgages are lower. Therefore, you will still need to prove your affordability, but it won’t be as high as with a standard mortgage.  

Equity release

Also known as lifetime mortgages, this type of later life mortgage lets you unlock the equity tied up in your home without the worry of monthly repayments. The loan plus the interest accrued are only repaid once you have died or moved into care and your property is sold.

As the interest is compounded, rates on equity release mortgages are higher and will affect any inheritance you leave to family. However, because there are no monthly repayments, you don’t have to pass affordability checks to apply.

How can I increase my chances of getting a mortgage?

If you’re over 50 and looking for a mortgage, there are several things you can do to increase your chances of being accepted.

• Have a plan in place for how you will repay the loan along with supporting paperwork.
• Review your credit score. Where necessary look for ways to improve it by paying bills on time and challenging any inaccuracies.
• Save as large a deposit as possible. The lower the lenders risk, the more likely they are to say yes.
• Get the advice of a qualified mortgage adviser
• Look at lenders who specialise in mortgages for older borrowers

Which lenders offer mortgages for over 50s?

Many banks and building societies such as Halifax, Santander and Nationwide offer mortgages for over 50s. However, your options reduce the older you get, which is where using the free services of mortgage brokers like London & Country can help.

Alternatively, if you’re interested in understanding more about the later life mortgage options, leading experts Age Partnership can talk you through the options and compare the market free of charge.

What happens if I can’t get a mortgage?

If you can’t get a mortgage with the first lender you approach, it’s worth speaking with other mortgage providers as lending criteria varies from company to company. If you still can’t get a mortgage, you may want to consider one of the later life options.