Winter Economy Plan leaves landlords out in the cold14:02 PM, 24th September 2020
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Financing beyond retirement age is important to consider well in advance. By the time I reach 75 it will be much more difficult to obtain new mortgages, although not impossible. Additionally, many of my buy to let mortgage lenders will want their money back.
Most landlords believe that if/when they reach the age of 75 they will have to sell at least some of their properties to pay off all remaining mortgage balances. However, that needn’t be true.
If you can get your LTV down to around 33% by the time you reach the age of 75 you may never have to make another mortgage payment! At age 85 the LTV is 42%
Sounds almost too good to be true doesn’t it?
Here’s how it works. It’s called a lifetime mortgage. The interest accrues and is added to the balance of the mortgage account. At the same time you have to remember that you still own the property and that will also accrue in value. Over the long term, mortgage rates and property values have risen at broadly the same level. On this basis, both your outstanding mortgage and your property value may well rise at similar levels in future, thus leaving the LTV at similar levels too. Obviously this isn’t guaranteed as property values and interest rates do fluctuate independently of each other, even though they have been similar on a historical basis.
The real advantage of this strategy is that you can retain a much larger percentage of your rental income as you will have no mortgage payments coming out of your bank account every month. However, as mortgage interest is still being charged and accruing to your mortgage account it will show on your annual mortgage statement. This means the mortgage interest can still be offset against your rental income 🙂
Lifetime mortgages are highly regulated and come with quite a lot of consumer protection. For example, there is a guarantee that the mortgage will never be called in prior to the death of the borrower(s) even if the mortgage debt exceeds the value of the property. That’s why the LTV’s are much lower but increase based on the age of the borrower. This is because mortality is factored into the lenders risk profiling.
I must point out that I am not authorised to provide advice on lifetime mortgages and this article must not be construed as advice. It is, however, a strategy which I am seriously considering for myself if I am lucky enough to live that long.
My buy to let property investment strategy is documented and constantly updated in the Advice section of this website. To get back to the main menu >>>
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