The split mortgage could prove to be a game changer for both first-time buyers and people looking for a mortgage that is likely to take them over retirement age. Two categories of people in particular should take a closer look at this type of mortgage –those buying their first property on a Joint Borrower, Sole Proprietor basis, and those who are looking for alternatives to an interest-only or equity release product.
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A split mortgage has two main working scenarios. The first is a Joint Borrower, Sole Proprietor mortgage where a parent helps out with a mortgage (without being on the deeds of the child's property), but only until they retire. So, the mortgage is split: the part of the loan the property owner qualifies for has an ordinary mortgage term (say, 30 years), while the part of the loan the parent is helping out with only has a mortgage term up to the time they retire.
This is a good option for first-time buyers who have a deposit, but wouldn't qualify for the entirety of the loan due to currently insufficient earnings or self-employment.
The other case scenario where the split mortgage becomes possible is quite different: a later life borrower who will not have repaid their loan by the time they retire, but is wary of the financial implications of an interest-only mortgage or equity release. A split mortgage would allow them to split their mortgage between a regular repayment mortgage before retirement, and an interest-only mortgage once they retire. That way, the buyer will not have to worry about being unable to make mortgage repayments after retirement. Plus, they also will be able to avoid the higher interest rates that come with interest-only products until they retire.
This would work if you're over the age of 55, but aren't planning on retiring for a good while yet. Do bear in mind that if you are taking out an interest-only product, maximum LTVs (loan-to-value ratios) apply: that is, there is a limit of how much equity you can own to qualify, which will differ between lenders.
The most recent mortgage lender to launch split mortgage options is Hinckley & Rugby, but they are also offered by building societies such as Newbury. As the number of later-life mortgage applicants and first-time buyers submitting complex applications increases, it's likely that the number of these more tailored mortgage products will increase.
Ready to see how much you could borrow for a mortgage, whether you are a first-time buyer or a later-life borrower? Use the comparison tool below.