New Era for Retirement Mortgages As Hodge Lifetime Enter the Fray

By Mark Gregory on August 2nd, 2013

Hodge Lifetime Retirement Mortgage PlanHodge Lifetime today launched another pioneering retirement product aimed at capturing the needs of interest only mortgage holders who have NO repayment strategy in place.

 

The Hodge Lifetime Retirement Mortgage Plan is aimed at people between ages 55-70 who wish to borrow upto 50% of their property value. The money can be used for any purpose, however Hodge have designed the product with a rescue package in mind.

 

The Hodge Rationale

The Hodge Lifetime Retirement Mortgage Plan has been designed with the former Halifax Retirement Home Plan in mind, which was withdrawn late in 2011. With similar features & basis for lending, the new Hodge Plan is the first product since the Halifax Lifetime Mortgage that will offer an interest only lifetime mortgage based on income criteria.

 

For those with only a limited time to repayment off their interest only mortgage, the Financial Conduct Authority (FCA) state there are 2.6 million interest only mortgages maturing before 2030. Of these, 10% have no repayment strategy in place & with the average mortgage balance being over £50,000, the extent of the problem cannot be underestimated.

 

At the point of demand for repayment of their mortgage, people currently have limited options other than downsizing or remortgaging onto another mortgage. The first option may suit some, but not all. The second has proven difficult, as lenders have reigned in their retirement mortgage book after guidelines laid down by the FCA.

 

How Hodge Can Assist

A retirement mortgage is a loan secured on your main residence which runs throughout retirement. Hodge’s new Retirement Mortgage will remove all the concern over the eventual repayment of the mortgage, as it only requires repayment upon death or long term care.

 

Therefore, for someone leading upto retirement with a pressing need for repayment, could seek independent mortgage advice and see whether it would be best advice to remortgage onto the new Hodge Plan. This would effectively remove the short term mortgage need & switch over to a lifetime mortgage providing a lifelong secured loan on their home.

 

Scheme Criteria

Hodge use pension income as the basis for the borrowing calculation. With a cautious approach in light of the Mortgage Market Review (MMR) in April 2014, Hodge will only accept the following forms of income towards the affordability calculation: –

 

  – Basic State Pension

  – Defined benefit pension scheme

  – Defined contribution pension scheme

  – Annuity in payment

  – Income drawdown arrangement

  – SERPS or S2P

 

Stability of income is key to Hodge lifetime, with the necessity of the income being paid on a level, or preferably an escalating annual basis. Hodge underwriters will assess applications on a case by case basis, subject to income & a good credit history. Combining both factors will determine the size of the release.

 

 

The Plan In Practice

Once the loan size has been determined, payments of monthly interest will then be made to Hodge which covers the interest charged. This has the effect of maintaining a level mortgage balance & will continue until age 80.

 

The initial interest rate offered is a 5 year fixed rate of 4.75% (5.1% APR).

 

Therefore, as an example borrowing £50,000 on the Hodge Retirement Plan would initially cost £197.92pm. Once the 5 year fixed rate has expired, the standard variable rate would commence, however there would be the option of taking another fixed rate at that time.

 

On reaching age 80, a decision will be need to be made as to whether monthly payments will continue, or they wish to be stopped. Ceasing payments will result in the plan reverting to a traditional roll-up equity release scheme, where the balance will increase annually.

 

The plan eventually ceases either on early repayment or after the last surviving planholder has died or moved into care. The property will then need to be sold in order to repay the mortgage debt, with any surplus funds passing to the beneficiaries.

 

Additional Features

 – Early repayment charges – are fixed over a 5 year period. They start at 5% in the first year reducing yearly down to 1% in year 5. There are NO penalties applicable after the 5th year.

Flexible Repayments – Hodge will allow 10% extra capital repayments over the initial 5 year period with NO penalty.

Loan Size – minimum £20,000, maximum £500,000

Property – must be in England, Wales & Scotland & have a minimum valuation of £100,000

No Negative Equity Guarantee – included at no extra cost & ensures the loan can never be more than the property value

 

Summary

The Hodge Lifetime Mortgage plan opens the door for those who have sufficient disposable income in retirement to comfortably maintain payments on their mortgage. It will particularly benefit those between the younger ages of the product criteria. Where usual interest only mortgage schemes from Stonehaven & more2life will only lend based on age.

 

The limits are invariably low on these two types of interest only lifetime mortgage schemes.

 

For example, the current maximum loan-to-value at age 55 with Stonehaven is just 19%. Compare this to the new Hodge Plan whereby if sufficient income is proven, then upto 50% of the property value can be released. On a £300,000 property the difference could be upto £93,000.

 

 

To discuss eligibility for the Hodge Retirement plan or request a mortgage quote please call the team on freephone 0800 678 5169 or click here for further information.

 

This is a Lifetime Mortgage.  To understand the features & risks, please ask for a personalised illustration.  Your home maybe repossessed if you do not keep up repayments on a mortgage.

 

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