Mortgages for older people
- Getting a mortgage if you’re older may be harder since the Mortgage Market Review
- Lenders expect you to pay off your mortgage by the time you retire, but some will consider extending past retirement
- Look into alternatives if you can’t find the right mortgage for your needs
Most mortgage lenders have an upper age limit for their lending, meaning that the end of your mortgage term can't extend beyond this.
This can make getting a mortgage difficult if you're older. For example, borrowers over 45 may struggle to take out a 25-year mortgage, as they would be at least 70 before the loan was paid off.
A combination of age limits, new affordability rules and rising house prices means that it may be difficult for older borrowers to borrow as much as they'd like.
Affordability rules and older borrowing
Since the Mortgage Market Review (MMR) was introduced in 2014, applying for a mortgage can be more difficult for some - lenders have to assess affordability and take into account a number of factors, including age.
The aim is to make sure that people entering retirement don't have unaffordable loans hanging over them. As people's income tends to drop once they leave work and draw their pensions, the MMR encourages lenders and borrowers to settle mortgages before then. This may not always be possible or work for everyone however and some lenders compounded this by setting max age limits for mortgages to be paid back by. Typically, these age limits are 70 or 75 and left many older borrowers with few options.
A knock-on effect of these age limits is that the terms become shorter i.e. they need to be paid off quicker. And this means higher monthly payments, possibly making them unaffordable. This has led to accusations of age discrimination, despite the positive intentions of the MMR.
Since the introduction of the rules a number of lenders have extended age limits for paying off mortgages.
Halifax extended its age limit from 75 to 80 in May 2016 and from July 2016, Nationwide extended its age limit by 10 years to 85.
However, there are sometimes limits to these extensions.
According to Nationwide, the new upper age limit applies to its standard mortgages, but the loan amount would be limited to £150,000 and no more than 60% of the property value.
In May 2018, Aldermore launched a mortgage you can have until you're 99 #JusticeFor100yearoldmortgagepayers. The same month, Family Building Society increased its maximum age at the end of the term to 95. Others, mainly building societies, have scrapped an upper age all together. However, some high street lenders still insist on a cut-off age of 70 or 75 but there is now increasing flexibility for older borrowers with Nationwide and Halifax extending age limits into the eighties.
According to the Financial Conduct Authority (FCA) in a recent report† on its affordability rules, "it is for individual firms to decide whether and to what extent they wish to operate in these markets, but our rules do not prevent lending responsibly to particular customer groups."
Getting approved for a mortgage
Considering most mortgages last for 25 years, it isn't just people nearing retirement who may find it a bit harder to get a mortgage.
People getting mortgages in their early 40s could be affected, and as the age of first-time buyers rises that is increasingly likely.
According to March 2016 research† by building society The Nottingham, 37% of mortgage applicants over 40 struggle to be approved.
Need more information?
Getting a mortgage when you're over 40 isn't impossible by any means, but you may need to answer more questions than a younger person.
The older you get, the harder it may be to access standard mortgage products. Some lenders can be flexible, and some may offer a bespoke service once they know more about your circumstances.
If you're planning on paying a mortgage after retirement, you'll need to prove to your lender that you'll have enough income for your monthly repayments - whether that's your pension, investments or savings.
However, it's likely that the amount you can borrow will be capped and you'll need a substantial deposit.
Extending your mortgage term
Taking out a longer mortgage is one way of reducing your monthly payments, but depending on your age this may not be possible.
Mortgages of 30 years or longer could be an option while you're in your 30s, but after that a lender may be reticent to approve a longer mortgage.
If you're finding it difficult to get approved for a mortgage, you may have to look into other options.
While it's more common for a parent to help a child get on the property by taking out a joint mortgage, it potentially could work the other way around.
Yet taking a joint mortgage where one of the borrowers is retired might not work as the age cap will be applied to the oldest person on the application. You might be fine though if the other (younger) applicant can show they can cover the mortgage by themselves. For example if someone bought a house for a dependent relative such as a parent, even though they won't live in it.
This can also result in incurring a higher rate of stamp duty if the house being bought is classed as a second home.
Similarly, a guarantor mortgage may be an option for older borrowers.
Guarantor mortgages can only be used in certain circumstances and come with a number of risks to both the mortgagor and the guarantor, so should be approached with caution.
Equity release schemes
Equity release mortgage products act as a way of unlocking some of the value from your home after you've paid off your mortgage and own your property outright.
One type of equity release product is a lifetime mortgage, which is a loan taken out against your property that doesn't require repayments.
Equity release products are considered dangerous, as there's uncertainty around how much you could end up owing.
Moving to a smaller property or a cheaper area could unlock a lump sum from your property.
In March 2014, pension rules were relaxed, meaning you can now take a regular income or a lump sum from your pension.
That might mean you have enough to buy a home outright, rather than getting a mortgage.
However, you'll only be able to take 25% of your pension pot tax free and will have to pay tax on anything you take beyond this.
Speak to a mortgage adviser
Getting a mortgage when you're older can be a minefield, so it might be worth worth speaking to a mortgage adviser.
They'll be able to tell you the pros and cons of the options open to you and can help find the right mortgage deal for you and your needs.