Following its withdrawal in August 2011, the Halifax Retirement Home Plan has certainly left a gaping hole in the pensioner retirement mortgage market.
Pensioners, who were proposing to use the Halifax Retirement Home Plan at a future date, unaware of its impending withdrawal, have now had their retirement plans severely disrupted.
Enquiries are still being received from retirees looking for a pensioner mortgage which can be used for a variety of lifestyle solutions.
With options from moving house, to holidays, gifting to children & home improvements, there has been a significant reduction in the interest only mortgage options available.
So why was the Halifax Retirement Home Plan Withdrawn?
Enormous demand for the Halifax Retirement apparently consigned the product to its own demise. Success is not usually associated with dramatic failure, but it seems the Halifax Retirement Home Plan was in this case, a victim of its own success.
Given the volume of applications Halifax was receiving, even a lender the size of Halifax was struggling with such popularity. Towards its latter days the Halifax back office systems were choking, solicitors being incorrectly instructed & timescales reaching unacceptable levels, so much so that Halifax have actually compensated clients due to administrative errors.
Reasons for the Halifax Retirement Home Plan's Popularity
Since the products start in July 1984, the Retirement Home Plan lay hidden in Halifax's mortgage book for many years.
However, certain intermediaries specialising in equity release, then understood the product had a role to play in providing best advice & offered an alternative to roll-up equity release schemes.
Not everyone is suited to a lifetime equity release scheme where the interest rolls up & compounds annually for the rest of their lives. Roll-up schemes to some pensioners can prove off extremely off-putting, with the balance about doubling every 10-11 years. The result & the impact of the compounding of interest will be that their beneficiaries will receive a significantly lower or completely eroded inheritance.
Therefore, for retirees who did not want this scenario, the interest only lifetime mortgage proved an excellent alternative. Obviously supported by a good secure disposable income, the Halifax monthly mortgage payments could be fulfilled, with the result of keeping the mortgage balance exactly the same for the rest of the mortgage term.
However, the doomsday scenario did eventually arrive & the Halifax Retirement Home Plan was pulled on 17th August 2011 at very short notice.
Regulation & the FSA Effect
With the FSA (Financial Services Authority) now imposing stricter regulation on interest only mortgages, this has affected the whole post retirement mortgage market.
Regulation here should be reviewed & consideration given to the plight of pensioners.
Over 60's looking for finance have fixed income for life -
They are already drawing their state, private & occupational pensions.
They are therefore in receipt of a guaranteed income for life.
They can't be made redundant, be off work due to sickness or take maternity leave!
Additionally & historically the retired generation of today have a different attitude to credit & tend to err on the side of caution. They have benefitted from house price booms of the last decades & so on the whole have a great deal of equity in their properties.
From a lenders perspective you can't get much better security than this?
So why are the over 60's being penalised?
After discussions with various lenders their defence has supposedly been the fragility of repayment. Considering monthly mortgage payments are paid by direct debit & pensions & retirement incomes are paid directly into the bank account, this doesn't seem to hold true?
The distinction should be therefore be made between the people pre retirement & those post retirement with regards to interest only mortgages.
The FSA has understandably clamped down on first time buyers & mid-life mortgagors taking out interest only mortgages with NO repayment vehicles. However, this has been to the detriment of pensioners whose cause has been undermined.
So for now we have to accept the level of caution in the mortgage market. However, moving forward consultation & consideration should be given to this corner of the mortgage market as it can have added benefits to a fragile economy. The reason being is that pensioners releasing equity in retirement do so mainly for lifestyle reasons:-
· home improvements
· deposits for the children
· new car/caravan
All these expenditures for one reason or another will help boost both the local & national economy.
What Interest Only Pensioner Mortgages Are Currently Available?
The aforementioned issues have arisen with the tightening of interest only criteria. Lenders will now insist on most mortgages expiring by age 75 & this will usually have to be on capital & repayment basis. More often than not this will result in the monthly cost being prohibitive, as paying off a mortgage of £50,000 over a short-term of say 10 years can be out of most people's affordability levels!
Nevertheless, a specialist equity release lender has analysed the situation better than most & hence we unveil the Stonehaven Interest Select Plan.
Offering SHIP security & choice as to the size of the monthly contribution, Stonehaven have covered all bases. This interest only lifetime mortgage provides lifetime fixed interest rates starting from just 6.13% thereby offering affordability now & into the future. With pension incomes rising over the years, but the monthly mortgage payments guaranteed to remain the same, the Stonehaven interest only equity release plan provides protection from future increases in interest rates.
However, it doesn't end there because if financial difficulties do arise then there is always the option to switch it over to a roll-up equity release plan with Stonehaven. No further payments are then required & dependent upon whether the switch was planned ahead or not, will decide whether an extra 0.2% is added to the rate. Stonehaven are members of SHIP & regulated by the FSA.
Rumour has it that niche lenders are now starting to look into pensioner mortgages & eyeing business opportunities, so there does seem to be light at the end of the retirement rainbow.