What mortgage options are there when our interest-only fixed-rate deal ends?

Q We are considering downsizing next year when our interest-only fixed-rate mortgage ends. The problem is that we will still need a mortgage and we are both now 62. I still work full time and also have a good pension. When I do retire, our pensions will amount to just over £32,000 a year. I have considered just selling up, taking the equity and going into the rental market. However, I think from a pure economics view this would be a bad decision. We would really value your opinion. SW

A The fact that you are both 62 should not be a barrier to getting a mortgage. Provided the mortgage ends by the time you are 75, most lenders should be prepared to lend to you. However, you will need to show that the mortgage is affordable both at the time of applying and once you are fully retired and living on a reduced income.

If you do sell up and buy to a smaller place, it would make sense to take out a repayment – rather then interest-only – mortgage so that you will eventually own your home outright. Not having a mortgage to pay will substantially reduce your outgoings and so make managing on a reduced income easier. As far as selling up and renting goes, you need to be sure that you could afford the rent into retirement. You also need to compare what you would pay in rent with what you would pay for a mortgage as there’s a high chance that the mortgage will cost less. With a mortgage, you also have the security of knowing that you’ll be able to live in the same property as long as you want to.

Virginia Wallis

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