The Family Building Society is offering what it says is a new solution for older home-owners “who find that their retirement incomes are not keeping pace with their ambitions”.
Its Retirement Lifestyle Booster is designed for older home-owners who intend to move to a smaller, cheaper and easier to maintain home in due course but who are not ready to do so just yet. In the meantime, the Retirement Lifestyle Booster pays them a regular fixed sum, every month for up to 10 years. In return they make a payment each month to cover the ‘average’ interest due.
The mutual says that at the end of 10 years, assuming all payments due have been made, the amount owing is what has been borrowed. This may be repaid by selling the house and moving somewhere less expensive and mortgage free.
Keith Barber, director of business development at the Family Building Society, said: “Our research with older people in 2015 showed that some worry that their pensions may not be enough to carry on doing what they enjoy: they often want to be able to achieve long held ambitions as well as helping their children and grandchildren. Our new Retirement Lifestyle Booster has been designed to enable older home-owners to do exactly this.
“The Retirement Lifestyle Booster is a real alternative to the default equity release solution for older borrowers. Whilst the equity release market is growing, there is a need for a wider of range of financial products for retired borrowers who do not wish to see their housing wealth eroded by the roll-up of interest which can be a feature of lifetime mortgages.
“People in retirement really value certainty and, with interest rates at rock bottom, this is an ideal solution to those who have substantial wealth tied up in their home and do not want to compromise on their lifestyle choices. It is yet another imaginative addition to our suite of solutions designed to deal with the complex financial circumstances which modern families face.”
The amount owed at the end of the 10-year term will be the same as the amount borrowed. The minimum amount that may be borrowed is £45,000 up to a maximum of 25 % of the property’s value.
The Family BS says that compared with a standard interest only mortgage there are two key differences. Firstly, the loan amount is paid out in monthly instalments on the 10th day of each month. It is the same amount every month for 10 years unless the borrower wishes to stop it earlier. Any existing mortgage is repaid from the agreed loan at the start of the Retirement Lifestyle Booster.
Secondly, interest is charged on the balance outstanding each month, just like a normal mortgage. As the balance builds up the amount of interest charged increases. What is different is that the home-owner pays the lender an amount each month that covers the ‘average’ interest due over the 10 years of the loan. After 10 years the outstanding amount is paid back, typically from the sale of the property as the borrower downsizes.
For example, a loan of £60,000 will give the borrower an extra £500 per month for 120 months. At the current interest rate of 3.44% (linked to the variable Family Building Society Managed Mortgage Rate) this requires a monthly payment by the borrower of £83pm.