Mortgage terms that run into retirement
A longer term lowers the monthly payment and moves the end of the mortgage past the client's working life. What lenders ask, what your file needs to show, and where the retirement income question goes.
A longer term lowers the monthly payment and moves the end of the mortgage past the client's working life. What lenders ask, what your file needs to show, and where the retirement income question goes.
A longer term lowers the monthly payment. For a buyer in their thirties or forties, a term long enough to make the payment affordable may end in their late sixties or seventies, after they expect to stop work.
The mortgage then has to be paid from retirement income for some years, or cleared at retirement from savings or a pension lump sum. Either way, the client's pension becomes part of the mortgage plan.
Responsible lending rules require a lender to take account of the borrower's income in retirement where the term runs past their expected retirement age. Lenders set their own approach.
A client in their thirties may have little evidence of retirement income. The lender's assessment may rest on assumptions, and the client's plan rests on contributions they have yet to make.
Record the client's planned retirement age, the term and the gap between them. Record the client's own plan for the gap, in their words: work longer, clear the loan from a pension lump sum, downsize, or pay from pension income.
Each plan carries assumptions about the client's pension. A client planning to clear the balance with tax-free cash is assuming their pension will be large enough, and that they will want to spend it on the mortgage. Neither can be tested without pension advice.
A term running past retirement with no realistic plan to meet the payments is a harm you can foresee. The Duty asks you to act to avoid it. Explain the risk in writing, record the client's understanding and offer a route to advice on the pension side.
Explaining that a pension will need to support the mortgage is a statement of fact about the client's plan. Recommending a pension contribution, or a level of saving, is pension advice.
Each product expiry is a point to check the plan. The client is closer to retirement, and their pension statements show what they have built. Ask whether their retirement age has changed and whether their pension position matches what they expected.
If the gap has widened, offer the introduction again. A client five years further on may be readier to talk.
A client remortgaging in their fifties with ten or fifteen years left on the term has less time to change the plan. Their pension statements show what they have, and their plan to clear or service the loan in retirement can be tested against it.
These clients can now see the tax-free cash and income their pensions may provide, and whether the plan works. They may also be considering a retirement interest-only mortgage or downsizing at retirement. Each option has a lending side, which you advise on, and a pension side, which you introduce.
Some clients will want to shorten the term once their income rises. Set out the effect on the monthly payment and any charges. Whether the client should pay more into the mortgage or more into a pension is a comparison you cannot make for them. It belongs with a planner.
Where two borrowers are of different ages, the term may run well past the older partner's retirement while the younger still works. Lenders may assess the older borrower's retirement income separately. If the younger partner's income would carry the payments alone, record that. If it would not, the older partner's pension is part of the plan.
The same applies when one partner earns most of the income. If that partner retires first or dies, the plan changes. Protection for the main earner is yours to advise on. How the couple's pensions support the survivor is a question for a planner.
Raise it when you agree the term: "This mortgage runs four years past the age you plan to retire. Your plan is to clear it from your pension at that point. Whether your pension will be big enough to do that is a pension question, which I do not advise on. A planner at Equity & General can look at it. Would you like me to put you in touch?"
Yes, where it is suitable and affordable and the lender accepts it. Record the client's plan for the years after retirement and your explanation of the risk.
No. That is pension advice. You can explain that their plan depends on their pension and offer an introduction to a planner.
Record it, explain the risk in writing and offer an introduction. The lender will assess what it needs to, but the client's plan for the later years is still open.
Clients ask their broker whether to overpay the mortgage with a bonus or savings. The parts of that question you can answer, the comparison you cannot, and how to hand it over.
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Six points in an ordinary mortgage case where a wider financial conversation opens naturally, and how the introduction to Equity & General handles each one.
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How the work divides between you and E&G: what stays with you, what passes to us, and the regulatory line between introducing and advising.
Read itYour firm keeps the mortgage and protection advice. Equity & General gives the pension, investment and estate planning advice, and a named partnership manager sets the arrangement up with you.