Britain’s biggest building society has rolled out a mortgage deal which could offer a lifeline to thousands of older borrowers stuck on interest-only home loans.
The retirement interest-only mortgage is like a standard interest-only remortgage but it can be taken after the borrower retires and paid back once the home is sold, the homeowner dies or goes into full-time care.
Borrowers can use them to clear existing debts or borrow against their home to help boost their retirement income.
In April, Nationwide became the first major mortgage provider to launch these mortgages, running a pilot with its existing customers. Now it has made the deals available to everyone, prompting experts to hope that the specialist home loans will finally start to gain traction with customers.
Nationwide becomes the first high street lender to offer retirement interest-only mortgages
Last year the financial watchdog changed its rules to allow thousands of retired borrowers to remortgage onto interest-only deals without needing a repayment plan in place.
Instead, they are allowed to use the sale of their home on death or moving out into full-time care to repay the balance.
Known as retirement interest-only mortgages, these deals are aimed at homeowners who have failed to clear their debt before retirement and those who would like to cash in on their home’s value to help fund their pension years.
While currently a niche product, their popularity is expected to grow substantially in years to come – but up to now they have only been offered by smaller building societies and specialist lenders.
What is Nationwide offering?
Nationwide is offering a two-year fix at 2.99 per cent, a five-year fixed rate at 3.19 per cent, a 10-year fixed rate at 3.79 per cent and a two-year tracker at 2.74 per cent. All deals are at 50 per cent loan-to-value and come fee-free.
Applicants must be aged 55 or over – both applicants if it’s a joint mortgage – and can apply up to age 85. Existing Nationwide mortgage members have special access to borrowing options up to the age of 95.
There are no product, valuation or advice fees, and an applicant’s reason for borrowing can include home maintenance and improvements, gifting to family members, going on holiday or debt consolidation.
Applicants must also be receiving a fixed pension income to qualify.
Eligible incomes include occupational pension income, annuities, state pension, pension credits or war disablement pensions.
Though Nationwide launched the deal in April, from today non-members can also apply
Nationwide’s Jason Hurwood said: ‘This move is in direct response to growing demand for choices in later life, which is why we are now extending to both members and non-members.
‘We are now the first major high street lender to support that growing demand with a variety of borrowing options to access the value locked up in their homes.’
Nationwide also offers a range of lifetime mortgages to new and existing customers.
How does it compare to what’s already out there?
There are a few retirement interest-only deals on the market, but many are from smaller lenders and some are restricted on a postcode basis, meaning not everyone can apply.
Around 20 lenders now offer the deals, but Nationwide’s are currently among the cheapest.
Leeds Building Society, the second largest lender to offer this type of deal, has a two-year fixed rate deal available up to 55 per cent loan-to-value, but at 3.34 per cent and with a £999 product fee it’s considerably more expensive than Nationwide’s offering.
Marsden Building Society offers a slightly cheaper two-year fix at 2.79 per cent at 50 per cent loan-to-value, but this deal does comes with a £998 fee. Nevertheless along with Nationwide this is among the cheaper options out there.
Meanwhile, specialist lender Hodge Lifetime offers a retirement interest-only deal up to 60 per cent loan-to-value, but the rate at 3.20 per cent for a two-year fix with a £995 fee is quite expensive. You must also hold at least £100,000 equity in your home to qualify for this deal.
On a £100,000 mortgage, Nationwide’s two-year fixed rate deal would result in monthly repayments of £249.17, Marsden’s £232.50, Leeds’s £278.33 and Hodge Lifetime’s £266.67.
Rachel Springall of finance experts Moneyfacts said: ‘The products on offer through Nationwide have been carefully priced to sit comfortably in the market and with such a prominent brand backing these type of deals, hopefully this will inspire other well-known brands to consider competing in this market.’
Have retirement interest-only mortgages flopped?
This is Money recently revealed that as of April 2019, just 353 retirement interest-only deals had been completed across the whole of the UK.
In March, we reported that just 112 retirement interest-only mortgages were successfully completed across the whole of the UK last year.
Official figures obtained from the Financial Conduct Authority via a Freedom of Information Act request then revealed that the number of retirement interest-only mortgages taken in the first three months of 2019 was higher than in 2018, but barely.
The tiny completion numbers come despite official estimates suggesting there are tens of thousands of pensioners with no plan for how to repay their existing interest-only mortgages.
These numbers were recorded by the Financial Conduct Authority before Nationwide launched its own product.