Author: Richard Norfolk

The time was when you started to pay your mortgage off whilst relatively young, perhaps 25 or 30. This meant that with the usual 25 year mortgage it was fully paid up at 50 or 55, and the problems of old age could be approached without the distraction of those monthly payments.

O.K., you now owned your own house and had to face the cost of maintenance, but somehow it was easier to bear. You also had a fairly accurate idea of what your pension would be worth, and if you had also paid for a company pension you had a reasonable idea of what your retirement income would be.

Sadly that accuracy is now largely a thing of the past. Government pension increases have fallen well short of matching inflation for a long time now, so the value of that pension has been steadily eroded. Many company pensions have hit difficulties and in some cases they have vanished altogether. And then there is your house – at what age will you cease to pay for it?

Currently, well over half a million pensioners still have outstanding amounts to pay on their mortgages, and it is not always the last few payments which are facing them. Figures indicate that over 20,000 of those still paying are over the age of 80; in terms of monthly payments, that is 180 or more made since they became pensioners, and they are still paying.

This situation has arisen because some have gone in for improvements to their home, or have decided to move house as retirement approaches, or in too many cases because of an endowment mortgage shortfall.

Prudential have researched the situation, and they reveal that almost 25% of pensioners are not in a position to find the funds necessary for a worry-free retirement. There is a major problem here which needs to be faced, and the fixed income which most pensioners have to cope with is only likely to exacerbate the difficulty of finding a solution.

Some people are now planning their lifestyle to ensure that property ownership will fund a part of their pension, with 13 million intending to take that route. Over 1½ million are banking on it providing in excess of half their retirement income. This is perhaps a reasonable approach if you have been able to plan for this nest egg, but if you are approaching retirement with only your home as security, you will need to hold off booking that world cruise for the foreseeable future.

Equity release is one possible solution, making use of your home’s locked in value. It is possible to obtain equity release on a home which still has a small outstanding mortgage balance, but expect to be required to use the funds released to pay this off. You will find that you must exceed a minimum age and your house must meet a minimum value before you can be accepted – the older you are, the larger the sum which you may borrow. Repayment of the loan plus interest charges will be required when the last occupier (of a maximum of 2) leaves the property, if necessary this repayment will be funded by the sale of the property.

Another approach which 1 in 6 pensioners are prepared to consider is to rent a room to a lodger. This is not a route to be taken lightly. Adapting to having a stranger moving in could be very difficult for many people, and in addition the financial implications need to be examined.

First you must get approval for the idea from anyone who has a financial interest in your home. Your insurer and any mortgage provider must give it their blessing, and it would be wise to talk to your tax office; they will give you a clear picture of what you need to consider from an earnings point of view. In this context you need to check the possible effect on any benefits which you currently receive.

Another route is to look at a the possibility of a re-mortgage but you are unlikely to obtain this if you are over 75, and the interest rates may be prohibitive. You would almost certainly have to use your home for security on the loan which, to put it simply, means that if anything goes wrong you could lose your home.

If you feel that you are too young for this situation to concern you, think again. The younger you are when you make your pension arrangements, the cheaper they will be. Wait 10 years and you may find that the payments for the pension you want have moved beyond your ability to pay

Shakespeare said ‘all the world’s a stage’, so act now!

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