As you enter your later years, the number of financial institutions willing to lend you money starts to reduce, especially if you have retired. Whether you’re looking to take out a large loan, get a new mortgage or even remortgage your existing home, you’ll often find that lenders are more cautious than they were in the past.
Thankfully, there are specialist products aimed at older borrowers. Later Life mortgages are specifically designed for homeowners over the age of 55 and offer a broad range of features and benefits.
Later Life mortgages allow you to access the equity stored in your home to fund numerous objectives, including home renovations, helping to support your family, and even purchasing a new property.
Unlike a standard mortgage from a mainstream lender, these mortgages have an open term and are designed to be repaid from the sale of the property when the last named borrower passes away or moves into long-term care.
In this article, we’ll highlight how mortgages are affected by base rates and how Later Life borrowing is priced a little differently.
How does the bank rate affect mortgages?
The ‘base rate’ has been heavily discussed in the news throughout most of 2023 as the UK economy endures a cost-of-living crisis and flirts with the prospect of a recession. But, what exactly is the bank rate and how does it relate to mortgages?
Often referred to as the Bank of England base rate, or simply ‘the UK interest rate,’ the base rate is the most important interest rate in the United Kingdom. The rate determines the interest the Bank of England pays to commercial banks holding money with them. It also influences the follow-on rates commercial banks charge their customers to borrow money.
By their very nature, base rates affect virtually everything from customer savings to loans and their associated mortgage payments.
For example, if the base rate falls, it is likely that any interest-related payments you are required to make, such as credit cards or overdrafts, will reduce, although lenders don’t always pass on these savings.
Conversely, if you’re a customer with funds on deposit as savings, a higher bank base rate means you could see an improvement in the interest paid on your savings account.
Improved savers rate initiatives have been seen recently, although they have required a Financial Conduct Authority meeting before the benefits were passed onto customers.
Concerning mortgages, the Bank of England base rate affects homeowners, particularly those on variable rate mortgages. However, homeowners with a fixed-rate mortgage aren’t affected by any change as the interest rate on their mortgage has already been agreed upon for a specific period.
Are Later Life mortgages influenced by the bank rate?
While the bank base rate influences the interest rate applied to standard mortgages, the most important factor concerning Later Life mortgage pricing is the UK 15-year Government bond yield.
Also known as a ‘gilt,’ these are issued on behalf of HM Treasury. Investors commonly favour gilts when it comes to long-term investments, as they have a fixed term and coupon. The UK Government has issued gilts since 1694 and has never failed to repay debt when it falls due, meaning there’s considerably less risk for the investor despite a lower yield when compared to other types of investment.
Due to their perceived low risk, gilts are often used as a benchmark when considering other long-term investments and the interest rates which apply to loans, particularly Lifetime mortgages.
Lifetime mortgage lenders consider the prevailing gilt yields available and apply a premium to offset the additional risk of using the borrower’s property as security for repayment of the loan, rather than investing in the low-risk gilt. Therefore, Later Life mortgage borrowers should monitor gilt yields closely if they are considering equity release with a Lifetime mortgage, a RIO, or drawing from their reserve on an existing plan.
Choosing a Later Life mortgage with Henry Dannell
Choosing a Later Life mortgage is an important decision that can enrich the quality of your life. These mortgages can help you realise your dreams, such as renovating your home or helping family members climb the property ladder.
There are two types of Later Life mortgage — Lifetime mortgages (also known as equity release) and RIOs (Retirement Interest Only mortgages) — While each product is different, they can both offer an affordable way to borrow in your later years.
At Henry Dannell, we set ourselves apart from other mortgage advisers as we provide a straightforward, one-time-only advice fee of £1,295 that is payable on completion of your mortgage.
Our advice fee is a fee for life, meaning that if life changes and you have exhausted your available funds, our Later Life advice will be available to you again at any time, with no additional advice fee payable should you wish to release additional funds or remortgage.
At Henry Dannell, we advise on a wide range of mortgage products, so it’s worth speaking with one of our specialists to explore your options and learn more.
Please note: Later Life product options include Retirement Interest Only and Lifetime mortgages. To understand the features and risks, always obtain a personalised illustration.