Borrowers aged over 70 took out nearly £2bn in non-equity release mortgages last year, according to exclusive data obtained by TWM Solicitors*.
Some older borrowers have been taking out these mortgages partly so that they can make Inheritance Tax (IHT) free transfers to their children and grandchildren. Many older borrowers make IHT-free transfers to help the younger generation onto the property ladder.
Older borrowers are also freeing up cash from their homes to deal with their increased costs of living, such as rising energy bills.
Using a mortgage to make IHT-free transfers
A borrower who wants to help their children onto the property ladder can take out a mortgage against the value of their property and gift some or all of the cash raised to their children. This may provide an immediate benefit, for example in allowing the children to purchase a property that they would not otherwise have been able to afford.
There is a potential secondary benefit as well. Provided the money is given at least seven years before the borrower’s death, no IHT will be due on this gift as it will be fully clear of the borrower’s estate. The value of the outstanding mortgage at the date of death is offset against the other assets in the estate when the borrower dies, thereby reducing or even eliminating any IHT bill.
An increasing number of mortgage providers are now willing to lend to borrowers aged over 70, provided they can meet the necessary repayments on their debts. The wider range of mortgage products available for over 70s means rates are becoming more competitive.
Seeking advice on taking out a non-equity release mortgage later in life
People aged over 70 considering taking out debt against their property should be aware of the potential risks. They should be certain they can make the monthly repayments on the mortgage after they retire. Prospective borrowers should also be aware of the higher interest payments that could be incurred from taking out debt later in life, and that those rates may rise over the period of the loan.
It is vital that potential borrowers assess all their options before taking on a mortgage later in life. Borrowers must also consider the total cost of the mortgage, including interest and commission. They should then weigh up whether this is the best long-term solution for their family and themselves – especially bearing in mind that there is no guarantee of surviving for seven years after making the gift.
How TWM can help you
There is no need for your estate to pay more IHT than necessary, and an experienced solicitor can help you to plan your estate in the most strategic way. The earlier you start, the more effective your planning is likely to be and the more options you will have.
To discuss your requirements, please contact our specialist Private Client team today for an initial no-obligation consultation.
*According to data from the FCA provided to TWM, £1.97bn in non-equity release mortgages were taken out by borrowers over the age of 70 in the year to March 31 2024.