Understanding mortgages in retirement

This content was reviewed and approved by Marc Perry.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.

Whether you’re buying a new house or relocating, there is a range of mortgage options when you’re retired.

Learn all about mortgages in retirement and what they mean for you.

What are mortgages in retirement?

Over the last five years, more and more mortgages have been agreed which either:

• Go past the state retirement age, as people need to stretch the length of their mortgage repayments to make them as affordable as possible.
• Start after age 55 and are repayable either on death, or when moving into permanent long-term care.

Whilst there is no legal upper age limit for ‘standard’ mortgage applications, most lenders will have their own age limit, even when you’re retired. With a standard capital and repayment or interest-only mortgage whether you’re buying your first home, releasing equity from the value of your home, or relocating in your retirement years, your lender will need assurance that you can repay the mortgage in full.

As you get older, you might want to remain in your current home, especially if it means living close to family and friends. But finding a mortgage for retired applicants can prove tricky, as you may have less time to pay it off, and your income might drop in retirement, which means you could struggle with the monthly mortgage payments.

If you’re looking for a standard mortgage in retirement, lenders will need to know about your income, investments and that you’re not solely relying on the State Pension. This information helps to calculate whether you can afford the mortgage repayments and the level of risk involved in lending to you. There are alternative types of mortgage or borrowing available in later years.

A common way of securing a mortgage in retirement is through equity release. It allows you to unlock money from the value of your property while you continue to live in your home and the mortgage is repaid on death or moving into permanent long-term care.

What mortgages are available when you’re retired?

Later life mortgages are specifically aimed at older people and retirees. Nothing is stopping you from applying for a standard mortgage, but your monthly repayments will probably be much higher as lenders may perceive older borrowers as higher risk and may offer shorter mortgage terms or require higher interest rates. Not only that, but most lenders will have their own age limit.

If you’re retired and looking for a mortgage, your options include:

1. Lifetime mortgage

If you’re 55 or older, lifetime mortgages allow you to access money tied up in your home by taking out a loan that’s only repaid when you die or move into permanent long-term care.

A lifetime mortgage is a type of equity release that lets you borrow a tax-free lump sum secured against your property. You’ll pay interest on the loan, which compounds, and builds up until the time comes to repay it from the proceeds of the sale of your property. However, some lenders allow you to make regular repayments up to a set amount as you go, to keep the final repayment amount down.

One of the main advantages of a lifetime mortgage is that you’ll continue to own your home and benefit from any rise in its value. Most lifetime mortgages also include a no-negative equity guarantee backed by the Equity Release Council, so, your estate will never owe more than your property’s worth when sold.

It’s important to understand that lifetime mortgages can reduce the amount of inheritance you can leave behind, unless you have taken an inheritance protection guarantee. You may also be required to pay an early repayment charge if you pay the loan off early, and the equity you release may affect your entitlement to means-tested benefits, both now and in the future. 

Our free equity release calculator helps you work out how much equity you could release from your property.

2. Retirement interest-only mortgage

Like other later life mortgages, retirement interest-only mortgages are aimed at older borrowers such as pensioners and retirees. The difference is that with a retirement interest-only mortgage, you make an interest payment every month, so the amount you owe doesn’t go up over time. You would usually need to repay the outstanding mortgage on death or on entering long-term care.

Retirement interest-only mortgages are viewed as an attractive option, so they often come with stringent conditions attached.

3. Home reversion plan

Another type of equity release is a home reversion plan, where you sell all or part of your property in return for a lump sum or regular income payments. While you’ll no longer own your property, you still get to live in it, either rent-free or for a nominal fee, depending on the plan you choose.

With home reversion plans, you can continue living in your property until you pass away or move into permanent long-term care. At that point, the home is sold, and the proceeds are split under the terms of your plan. This type of product can be expensive, and you could receive significantly less than the market value of your home.

LV= does not sell or offer advice on home reversion plans or retirement interest-only mortgages.

4. Older Person Shared Ownership (OPSO) scheme

The Older Person Shared Ownership scheme is a government-backed initiative available to those aged 55 or over that provides pensioners and retirees with a different way of buying a property.

With OPSO, you buy a share of a property and pay rent on the remaining portion. The maximum share you can purchase is 75%, after which you won’t pay any more rent.

5. Home Ownership for People with Long-Term Disabilities (HOLD)

Another shared ownership scheme is the government’s Home Ownership for People with Long-Term Disabilities (HOLD).

Like OPSO, HOLD offers a mortgage solution to retirees and pensioners. However, it is only available to those with long-term disabilities and who meet specific criteria.

Can I get a mortgage on a pension?

Yes, you can still get a mortgage using your pension income when you’re retired. Lenders view pensions as a reliable source of funds, as they can see the value of your pension pot and/or pension income and assess your ability to make repayments.

While there isn’t a legal upper age limit for applying for a mortgage when retired, some lenders impose their own ceiling to reduce the risk. This ranges between 65-70 years for many lenders, though some offer mortgages to those aged 80 years and over, albeit this is likely to be for shorter-term loans.

How do I get a mortgage if I’m retired?

Once you’ve left full-time work, getting a mortgage when retired can feel challenging. Lenders weigh up the risk by assessing your age, retirement income, spending and ability to repay what you’ve borrowed. When applying for equity release, lenders also assess the condition, location and value of the property.

Yet it’s entirely possible to secure a mortgage when you’re retired using your pension income as long as you meet the loan criteria. The types of pensions lenders typically accept as mortgage payments include:

If you’re looking to take out a mortgage in retirement, speak to a professional retirement and pension adviser. They’ll explain the options open to you, whether you’re likely to qualify for a pension based on your age, income and other factors, and answer any questions you may have.

Need more advice about mortgages in retirement?

Are you looking for a mortgage in your retirement years? Perhaps you’re relocating, buying a new property or need to release some of the equity built up in your current home? While some mortgages are harder to come by as you get older, there are options open to you. Speak to one of our friendly retirement and pension advisers today to discuss your pension options. Alternatively, contact us today for financial advice.