Jenny, 72, retired

This case study does not represent real people and is for illustrative purposes only.

  1. Jenny's story

    Jenny has been retired for the last five years. As part of her divorce settlement ten years ago, she received the marital home, which was already mortgage-free.

    She lives in Southwold, Suffolk, in a semi-detached four-bedroom house.

    Her private pension, state pension and part-time job give her a reasonable lifestyle but she has very little money available for treats like holidays and nights out.

    She has two children and three grandchildren.

    She knows the value of her home has risen significantly since she and her ex-husband bought it 40 years ago, and has been wondering if there might be a way of using that to her advantage. But Jenny has never taken any sort of financial advice and feels rather confused and intimidated when it comes to financial matters, so hasn’t yet taken any action.

    She has confided in her children who have encouraged her to look into the options available and have offered to help her with any decisions.

  2. What she wants

    • Improve her lifestyle by being able to take her children and grandchildren on holiday occasionally and go on her own painting breaks.
    • To be able to have lunch and dinner dates with friends, and be able to treat her grandchildren when she wishes.
    • Doesn’t want to move and feels strongly about leaving an inheritance to her children.
    • Would like to borrow £80,000 ideally.
  3. Financial situation

    table
    Assets Expected outgoings

    House value: £820,000

    Savings: £6,000

    Part-time job: £6,000 a year

    Private pension: £15,000 after tax annually

    State Pension: £7,000 annually

    Living expenses: £800 a month

     

  4. Suggested actions

    • As Jenny doesn't have sufficient retirement income to match her lifestyle aspirations and her home is her only significant asset, a RIO mortgage may allow Jenny to release a significant capital sum.
    • The amount required offers a very low loan to value.
    • Jenny’s income will allow her to pass the affordability test.
    • Because Jenny is keen to leave an inheritance, a RIO may suit her better than a lifetime mortgage.
  5. Benefits for Jenny

    Assuming that Jenny passes the affordability checks, a RIO might be a practical solution for her. There is a large amount of equity in the house and given her desire to stay put and provide an inheritance for her children, a RIO mortgage could offer her the lifestyle she desires.

  6. What are the potential risks?

    Your client should think carefully before securing other debts against their home. Their home may be repossessed if they don't keep up repayments on their mortgage.

    Their ability to make the payments may be affected if:

    • Their income falls in the future. 
    • Their expenditure increases in the future. 
    • Inflation reduces the purchasing power of their income.

    Taking out a mortgage in later life could limit their future choices too. For example:

    • It might affect their family's inheritance when they die.
    • They may not be able to afford any additional care needed in later life.
    • Their future choices in moving home could be limited.
    • Opportunities to borrow from other sources could be limited.
    • If the loan is for life, they'll repay the loan from the proceeds of the sale of their home when the last borrower enters into
      long-term care or when they die.