Data from the CML has revealed older borrowers have higher levels of equity to debt with repayment rather than interest only mortgages.
The data from the Council of Mortgage Lenders (CML) is based on the outstanding mortgage debt valued at £979 billion in June 2016 and equates to some 91% of the total owner-occupied mortgage stock.
It covers residential property including first time buyers, home movers and remortgage buyers showing average debt and equity for each age and excludes 9% of the market with predominantly unregulated older loans.
From the lifecycle, those aged 38 hold the most debt of £147,276 on average with £103,260 of equity and only from age 46 does equity exceeded their mortgage debt.
Those that are aged over 60 account for only 9% of all the mortgage holders but hold 14% of the total equity of the mortgage-holding population.
Equity varies with mortgage type
Older borrowers accumulate more equity reaching a peak at 71 with £166,813 and debt of £88,367 although large differences are seen between homeowners with repayment mortgages and those with interest only mortgages.
This means you may be able to consider releasing cash from your home and if you use a lifetime mortgage you can spen the money on anything such as an extension, loft conversion, a holiday of a lifetime or give to children or grandchildren as a deposit on a property.
A repayment mortgage includes the interest you pay to the lender for the loan and capital repaying and reducing the original loan amount.
The following repayment mortgage table shows how equity and debt is different at various ages in the population.
| Age attained | Equity amount |
Mortgage debt |
|---|---|---|
| 40 | £109,157 | £137,734 |
| 45 | £117,703 | £115,309 |
| 50 | £123,362 | £93,699 |
| 55 | £127,973 | £73,296 |
| 60 | £134,950 | £52,744 |
| 65 | £147,261 | £41,490 |
| 70 | £148,493 | £34,379 |
| 75 | £117,155 | £34,725 |
The largest amount of average equity is for people aged 70 at £148,493 with a small amount of debt of £34,725 and they have 4.25 times more equity than debt in their property.
If you have an nterest only mortgage you only pay the interest and the original loan remains unchanged over time and must be repaid at the end of the mortgage term.
The following interest only mortgage table shows how equity and debt is different at various ages in the population.
| Age attained | Equity amount |
Mortgage debt |
|---|---|---|
| 40 | £124,218 | £173,789 |
| 45 | £164,410 | £192,229 |
| 50 | £178,593 | £187,960 |
| 55 | £179,273 | £177,092 |
| 60 | £177,424 | £177,424 |
| 65 | £179,881 | £149,981 |
| 70 | £182,577 | £135,571 |
| 75 | £127,367 | £100,860 |
The largest amount of average equity is for people aged 69 at £192,033 with debt of £145,144 and they have 1.32 times more equity than debt in their property.
The data shows people with interest only mortgages have more equity and also more debt than for those with repayment mortgages.
For both types of mortgages the equity and debt reduces for older homeowners which may in part be due to downsizing to smaller homes or mortgage affordability.
If you are retired, own your property outright and would like a better quality of life such as living in a coastal town or in a national park, you can buy a new house with equity release which could be more expensive, allowing the interest to roll-up over time.
Opportunities for older borrowers
The CML data only considers properties with a mortgage where borrowers aged 50 and over hold 28% of mortgage debt but 43% of the free equity. That translates to some £400 billion of free equity for these older borrowers.
Using data from HM Land Registry and the English Housing Survey CML has suggested that mortgage-free home-owners aged over 50 hold comfortably over £1 trillion of equity.
Nearly half of the total equity held by borrowers is related to those mortgages with a typical 25-year term ending beyond the state retirement age.
Older borrowers tend to be asset-rich with low-geared debt, yet they often have a relatively narrow range of opportunities.
The wealth in your property can be released to improve the quality of life such as by downsizing your home and releasing cash so you benefit from a more efficient home and a useful lump sum to spend.
Retired home movers can buy more expensive properties where there is a shortfall using a lifetime mortgage to access money for the extra deposit.
If you are planning to access cash with a lifetime mortgage but are expecting an inheritance and may repay part of this in the future, there are a few types of plan structures to consider such as fixed penalty or gilt based penalty with a range of early redemption charges.
For older remortgage buyers that are required to repay their loan by the lender, rather than downsizing and paying stamp duty tax the equity release buyer can agree a lifetime mortgage.
To unlock housing wealth they can consider an equity release mortgage and with loan to values based on age, the older you are the higher cash amount you can access.
See what the maximum loan to value is for you, how much cash you can release from your home and the interest rate with this link:
Free equity release calculator with instant figures for different loan to values.
In 2014 only 5% of all residential mortgages were available for terms that would take borrowers over the age of 75 and lenders have realised the needs homeowners by relaxing the age restrictions imposed on borrowers.
At the start of 2016 had risen to 17% and by the end of September, 40% of the number of mortgages products were available for borrowing to this age.
What are your next steps?
Talk to our London City Mortgage advisers if you are an older homeowner releasing cash, we can do the work for you by recommending the product managing the process by completing the lifetime mortgage.
Find out which products would be best to help you access cash from your property and lowest interest rates using this link:
Free equity release quote of the best products to elp you release cash from your home.
At LCM our mortgage advisers can source the products for you that meet with your objectives. Learn more by using the equity release calculator, property value tracker chart and mortgage costs calculator.
