I will be 77 in May, on the same day my wife will be 55. We have two sons, one who has just been made redundant and the other at school or college for another three years.
Last May, I had to give up my part-time job when the company went under. Our annual income is £30,000 gross, but we still have a £120,000 mortgage on a house worth £290,000.
Two companies have offered equity release loans that would let us pay off all or most of our mortgage.
This would increase our spendable income by £800 a month and make life easier. In the next five years we expect to move somewhere smaller, to repay part of the loan. Do you see problems in doing that, or alternatives?
JB, by email
Advertisement
The problems are enormous and the alternative is simple: downsize now to eliminate the mortgage. That may trigger family problems, with your two sons potentially living with you, but stretching to rent them a flat for a few years will still be better than committing to an equity release deal that would almost certainly lock you into your present home.
You seem to forget that the interest rolls up on equity release, so when you sell you might have very little equity with which to buy a new place. Your plan is not even a starter unless you have sufficient savings or other assets to repay the part of the existing mortgage not covered by the equity release loan. You cannot keep both loans alive, as an equity release lender would want your present mortgage repaid in full and your current lender would not allow it either.
The maximum loan available on equity release for a couple depends primarily on the age of the younger person — and with your wife at 55 there are few options.
Aviva, the largest lender in this market, would offer a 55-year-old no more than 19% of the property value, £55,100 on £290,000. The interest would be fixed for the term at 7.64%. A smaller loan would be cheaper.
As the maximum loan is less than half the outstanding mortgage, this will not work unless you can find £65,000 to repay the balance of the mortgage.
Advertisement
Ray Boulger at John Charcol, the adviser, said: “If you have that amount of savings, and if your current mortgage rate is significantly less than 7.64%, you would almost certainly be better off keeping the current mortgage and dipping into savings until you sell.”
If selling now is unpalatable, I suggest you switch your mortgage to interest-only, which should more than halve payments. When the property is sold you will have more to repay, but you may settle for such a trade-off.
Your existing lender will probably turn you down as it will regard this as a new loan to an over-age applicant and take the excuse to cut you adrift.
The alternative is to find a new lender. Very few offer mortgages beyond the age of 75. Leeds and Darlington building societies will lend beyond 75 and other societies may do so for local residents. Paragon and Nationwide’s The Mortgage Works lend to over-75s for buy-to-let.
Assuming your joint income of £30,000 is provable and ongoing, and you have a good credit record, you stand a fair chance.
Advertisement
I am a BT employee turning 56 this year, with 40 years’ service in what was a final salary pension scheme but has been based on career average salary since 2009. Due to BT’s change in culture — more dismissals and demotions for underperformance — most of my colleagues of similar age have started to take their pension but carry on working while they can. For each year before 60 that the pension is claimed, the lump sum and yearly income fall by 5%. Should I take the pension now, investing the lump sum and monthly amount? Or is it best, if possible, to stay in the scheme until I am 60 to avoid a 20% reduction?
CS, Liverpool
Put the alleged culture change to one side in deciding what to do about your pension. Much depends on your personal finances as a whole but a sound rule of thumb with a private or occupational pension is to hang on until the maturity date before taking the money. So stay put if you can.
I think your colleagues are being short-sighted in taking their pensions early, unless they are in genuine need.
Your pension will not be affected by your employment status — apart from a reduced final salary — but that is less important now the pension is based on your career average salary.
Check the scheme’s latest policy regarding your accrued rights. Many defined benefit schemes amended their rules after April 2006 to restrict pensions to no more than two-thirds of final salary but your administrators may be reconsidering now that the 65 default retirement age is being scrapped. The big question is whether you can build up pension rights beyond the two-thirds level.
Advertisement
Tom McPhail at Hargreaves Lansdown, the adviser, said: “One reason for staying in the BT scheme as long as you can is that the 5% a year is not easily recouped without taking considerable risk.”
Email your questions to wealth@sunday-times.co.uk. Unfortunately, we cannot reply to or deal with every email