Has anyone been successful getting an interest only mortgage (age 55+ RIO) w/ DWP benefits as income

MoneySaverUK123

As per title, I was wondering if it's possible to get a lender to agree on an interest only mortgage (say a RIO age 55+), using DWP benefits as income to pay off the interest only monthly payments? 

Thanks a lot for any comments.

sammyjammy

I think its extremely unlikely and if its possible its best done through a mortgage broker.  What is the plan on how to pay off the mortgage when its becomes due?  Interest only mortgages tend to have very specific requirements/high salary  

MoneySaverUK123

Thanks a lot, I appreciate your advice.

Unfortunately I had no idea that interest only mortgages tend to have very specific requirements.  That's a pity.  To answer your question though, my plan is to simply let the lender have the property once I die or am moved in to a care home.  Because of this, I was hoping this would make it attractive for a lender to give me this type of mortgage, but perhaps I am being naive and/or over optomistic?  What do you reckon?  Thanks.

The other option, perhaps, is for me to consider the "Homewise" solution, at age 60, but I kind of like the idea of a RIO at 55 better.

MWT

A RIO product is different to the sort of interest only products that sammyjammy is referring to, so the repayment vehicle and the high salary requirements are not an issue, but...

You will need sufficient guaranteed income in retirement, and although you should certainly talk to a broker, it is unlikely you are going to be successful with only DWP benefits as a many will only consider the State Pension element and not other DWP benefits.

Not all lenders offer them at 55 either, and some will require you to be retired.

Have you figured out how much you would need to borrow?

Do talk to a broker, but if there is no plausible income lasting through retirement other than DWP, it is probably not going to work... 

kingstreet

I've just had a quick gander at the criteria of one RIO/Lifetime provider. It accepts DLA/UC as long as it is indefinite, so more lenders should follow suit. Seek advice from a suitably qualified ER/Lifetime specialist.

MoneySaverUK123

Thanks a lot people!

(BTW, to comment on @kingstreet 's comment, my DWP award is not indefinite, unfortunately.)

Regarding @MWT 's comment, how much I'd like to borrow, my rough calculation/sums are as follows -

I hope to sell my flat for 150K

My SIPP will hopefully be worth around 50K when I am 55.

I hope to buy a place costing around 220K

Therefore I'd like a mortgage of around 20K, but if I borrow against the SIPP as well, not cashing it all in in one lump sum to avoid taxation, then the mortgage will need to be 20K+(75% of 50K), in order not to pay any tax on cashing in the remaining 75% of the SIPP in one lump sum.

I think that's correct?!

MWT

MoneySaverUK123 said:

Therefore I'd like a mortgage of around 20K, but if I borrow against the SIPP as well, not cashing it all in in one lump sum to avoid taxation, then the mortgage will need to be 20K+(75% of 50K), in order not to pay any tax on cashing in the remaining 75% of the SIPP in one lump sum.

I think that's correct?!

You need to take some proper advice as Kingstreet suggested above.

There are options for you, including Equity Release for example, but in general terms, you can't secure a residential mortgage for your home against your SIPP, but you would use the SIPP to provide income which would support your application for a RIO...

... but the question remains that if you go down the RIO route, do you have a credible, guaranteed income stream in retirement sufficient to meet the stress testing for the interest on the RIO?

Talk to an advisor about Equity Release, at age 55 with a purchase of property worth £220k you may be able to release around £60k, which would work well with your plans and leave you only needing £10k from your SIPP (assuming you have savings to cover the other costs of the purchase).

So there are solutions, but you need advice.

If you already have an advisor or have recommendations from friends, then talk to them, if you don't then you might want to have a chat with 'StepChange Financial Solutions' as they can provide free advice regarding these products. 

MoneySaverUK123

Thank you very much @MVT !

>>do you have a credible, guaranteed income stream in retirement sufficient to meet the stress testing for the interest on the RIO?

I fear not.  I will have to abandon the idea of a RIO.  My DWP benefits awards are not indefinite, and I only have my SIPP.  (And that, btw, will only be available to me in 2.25 years time, as I am not yet 55.)

So, I feel that the next stage for me is to get advice from an ER specialist, and also, to realise that I will have to delay things for a little while until the clock ticks down until I'm about 55!

Regarding the ER release example of 60k in your message, is this a type of 'lease for life' arrangement, whereby the lender gets to own the whole property when I die/or go to a care home, and in return for this arrangement, while I am alive, I do not have to make any payments for this loan?  (I'd be happier with paying off the interest only, because you never know, at some point in the future, I may bitterly regret loosing "control" over the ownership of my home.)

Thanks very much for any further comment on my question above.

MWT

MoneySaverUK123 said:

Regarding the ER release example of 60k in your message, is this a type of 'lease for life' arrangement, whereby the lender gets to own the whole property when I die/or go to a care home, and in return for this arrangement, while I am alive, I do not have to make any payments for this loan?  (I'd be happier with paying off the interest only, because you never know, at some point in the future, I may bitterly regret loosing "control" over the ownership of my home.)

You will own your home, the amount you have borrowed will increase each year as the interest compounds and rolls up over the years, but with even a very small annual increase in property, it is likely that you will still have some equity in the property even 30 or more years on...

Most current ER products do allow you to male voluntary payments to offset the interest or reduce the balance (typically 10% of the amount borrowed each year). ... but these are voluntary, there is no obligation to make any payments at all so it stays under your control.

These are topics you'll work through when you take advice...

MoneySaverUK123

Thanks a lot @MVT

>>it is likely that you will still have some equity in the property even 30 or more years on...

I am guessing that something happens when equity approaches zero.  Is the homeowner requested to downsize at that point in time?

MWT

MoneySaverUK123 said:

Thanks a lot @MVT

>>it is likely that you will still have some equity in the property even 30 or more years on...

I am guessing that something happens when equity approaches zero.  Is the homeowner requested to downsize at that point in time?

Nothing happens, that is the risk the lender takes when they gamble on how house prices will move and how long you will live...

Your risk is that your ability to release further funds or to sell and release money to help with your care costs reduces as your equity dwindles...

With current interest rates and the amount lenders are willing to advance, it only takes a very modest annual increase in property value to ensure that you will have equity though until your demise or move into long-term care.

It isn't to the lenders benefit to enter into loans where the likely result is the loan + interest exceeding the projected value of the property...