It’s a fact of life that we are all working longer and living longer than previous generations. It’s also true that generally we’re leaving it later to start a family and the average age of the first time buyer is now 30 (higher if buying in London, or for those not receiving family support, where it reaches 37). So, with us settling down later, only joining the property ladder in our thirties and living longer why is that some lenders are refusing to offer 25 year mortgages if you are over 40?
The Mortgage Market Review
The Mortgage Market Review (MMR) introduced last year included new affordability rules for mortgage lending. These rules were designed to prevent excessive borrowing and ensure homeowners could afford to pay back their loan now and in the future, especially if interest rates should rise. As a result mortgage lenders need to prove that every mortgage they provide is affordable for the borrower. However, whilst it was not the intention of the Financial Conduct Authority this change in approach has resulted in preventing some groups from getting a mortgage; these mortgage misfits include older borrowers, the self-employed and those on salaries below the national average.
In this process some lenders have decided to stop lending to mortgage applicants if they will be over 65 when their mortgage expires. It is not exactly clear why some lenders have decided that older borrowers are at greater risk of not affording their mortgage and have excluded them in this way. It may be due to the uncertainty of when an individual is actually going to retire or the need to prove that a later pension income will meet the affordability requirements. Calculating a future pension payment can be extremely difficult to predict.
However, there are lenders who are able to take a pragmatic view on affordability for older borrowers and work with them to help establish if the mortgage is affordable. There are lenders, usually smaller building societies who will accept mortgage applications (subject to criteria and affordability, etc) from borrowers up to the age of 85 and even beyond.
Borrowing As You Become Older Is Tough
This is not just an issue recognised by the industry and those unfortunate enough to have experienced rejection first hand. A recent survey conducted by ICM Unlimited on behalf of Ipswich Building Society identified that 39% of current mortgage holders are concerned about the availability of mortgage products for older borrowers:
Surprisingly it was younger borrowers who showed greater concern than older borrowers with 45% of 20 – 29 year olds being concerned versus 35% of 40 – 49 year olds. And, 18% of households expected to have a mortgage after they retire, with the highest stated reasons being because they expected to have sufficient income post retirement to afford it (22%) and having moved to a bigger house (18%).
Only 6% stated the need to extend their mortgage into retirement to support a second property for a family member, albeit for some respondents they may not even be parents yet or only have young children. Whatever the reason might be to continue a mortgage beyond the age of 65, ensuring this choice is available to keep up to date with modern ways of living is essential if mortgages are to remain relevant in the future.
Tips To Obtain Mortgages For The Over 60s
If you are an older borrower looking for a mortgage here are some options to assist your search for a mortgage.
- All lenders have lending policies and these will contain a maximum lending age, a quick call requesting confirmation of this limit should help refine your search. If you don’t fancy doing the leg work, then a mortgage broker should be able to do this for you (although you may need to pay a fee for this service).
- Careful consider if you plan to continue working beyond retirement age and if this is realistic, for example a manual labourer may find it difficult to continue working when they are 85.
- If you intend to fund your mortgage beyond retirement through a pension or other investments, prepare detailed information about these before you speak with the mortgage lender. The more accurate you can be the better.
- Generally, look to regional or smaller building societies as opposed to larger banks. These smaller lenders use manual underwriting rather than automated processes to make their lending decisions meaning they can cope with more complex cases.
- Finally, if you are not sure how best to proceed or need further help, seek professional advice from a mortgage broker or independent financial adviser.