Mortgages used to be fairly restrictive for the ‘later life’ borrower, but times are changing.
Many people are retiring later, and there are also a lot of people who have built up substantial equity through owning a home for decades, which has given them enough financial security to prove they can pass affordability checks.
In response to these shifts in how people are living, and their financial status, mortgage lenders have adapted their product range to give older borrowers more flexibility.
In this article, the expert team of mortgage advisers at PIL Southampton answers questions they are often asked on this topic.
There is no standard ‘across the board’ maximum age. Each lender has their own rules.
Some providers stipulate a maximum age you can be when you apply for a mortgage, but this can vary widely. An older borrower is generally classified as above 55, but a lender could accept your application when you are significantly older than that.
Usually, your mortgage term needs to have ended by the time you turn 70 or 75, which means that this is the maximum age you should be when you settle your mortgage in full.
However, there are lenders who will approve mortgages for borrowers who would be turning 90 by the time their mortgage term ends.
If you have a repayment strategy in place that will reassure the lender that you have the financial means to repay the mortgage in full at the end of the term, there is no reason why a ‘later life’ borrower will not be able to take out an interest-only mortgage.
Although most lenders set their upper age limit for applying for a mortgage at around 70 years old, there are some lenders who will approve a mortgage application from an 80 year old.
Some lenders don’t set an upper age limit at all. Instead, they look at each application on a case-by-case basis, focusing on the applicant’s ability to pass their lending criteria checks rather than their age.
With these lenders, if you can prove you can afford to pay the money back, your age will not be a limiting factor.
Some niche lenders may not be well-known high street names, but they may have just the right product for you. It is always important to check the small print to make sure you are fully aware of, and comfortable with, all of any lender’s conditions.
Yes, most lenders apply different loan to value ‘LTV’ ratios depending on the age of the borrower.
For example, a lender may offer a 70% LTV mortgage for an 80 year old, but a 70 year old could get approved for a 90% LTV mortgage.
In some cases, being older can mean that you have a lower income because you might not be working full time, or you may be fully retired.
Also, as a rule of thumb, lenders will make the assumption that the older you are the more likely you are to have health issues, which needs to be accounted for, and the stark reality is that there is a greater chance of you not surviving the end of your mortgage term.
Some lenders have a cap on the value of the home you are attempting to buy, if you are an older borrower.
The priority of all mortgage lenders is to grant mortgage applications to those who can reliably meet their mortgage repayments.
The closer you get to retirement age, the more closely the lender will scrutinise your ability to meet those payments. For example, if you are likely to retire during your mortgage term, they could be concerned that your income will be lower and less stable post-retirement.
If your income is going to decrease during your mortgage term, this could have an impact on your affordability criteria – depending on your age and your lender’s maximum age criteria, it could mean that your mortgage term is shorter than the standard, which will then result in significantly higher monthly repayments.
Yes, you can. Like with all mortgage applications, you will need to show that you have reliable means to meet your monthly payments.
There are now mortgage products designed just for retirees, like the retirement interest-only (RIO) mortgage.
RIOs are a popular option for many older borrowers. The way this mortgage product is set up means that the equity going into your estate is preserved, and you can take an RIO out over various term lengths, from two years up to the rest of your life.
This can be an attractive option for those who choose to repay the mortgage, or move house and downsize, without incurring substantial exit fees.
An RIO also gives the opportunity to overpay, further reducing your debt and leaving a higher value estate for your beneficiaries.
We have talked about the retirement-only interest mortgage, where you pay back only the interest part of the loan. The actual loan isn’t usually repaid until you sell your home, permanently move into a care home or when you die.
There is also another mortgage product for the older borrower – Older People’s Shared Ownership schemes. These schemes allow anyone aged at least 55 to buy a 10-75% share of a property, repaying a mortgage provider for that share, and paying rent to a housing association for the share that they own.
Older borrowers could also consider equity release products, like a lifetime mortgage where you borrow a certain amount of money against the value of home, that doesn’t get repaid until after you’ve died or gone into long-term care.
It is important to note that, as you are not obligated to make any repayments on this type of product, the compounded interest that would build up if you don’t make any repayments could dramatically reduce the overall value of your estate that gets inherited.
A less common form of equity release mortgage is a home reversion plan. They are offered by fewer lenders now than they were in the past. The lender buys part, or all, of your home at below market value, in return for giving you a lump sum or a regular income. In exchange for enabling you to live in your home rent-free, they then recoup their investment by selling your home when you die or move into long-term care.
The older you are, the easier it is to get approved for an equity release mortgage.
A knowledgeable, experienced broker who is working in this field every day will know which lenders are offering particular terms that will suit your circumstances, and they will help you with your application to give the best chance of you being approved.
Just like anyone applying for a mortgage, strict criteria will apply before you are approved for a mortgage, like affordability and credit history.
When you apply for a mortgage, make sure you have evidence of your pension income and any other retirement income like rental payments from a second property or anticipated dividends from stocks and shares.
Reduce your debt-to-income ratio by paying off whatever other loans and credit cards you may have, if you can.
Another option is to downsize to a more affordable property to help the numbers work better for you.
Some lenders may consider you using a younger relative as a guarantor.
And, finally, using an experienced mortgage broker for their advice and guidance during your application process should improve your chances of securing a mortgage later in life.
If you are turned down for a mortgage when you apply in later life, a mortgage adviser will do their best to help you.
Depending on your circumstances, a secured loan or an equity release product could be the most appropriate option for you.
Whatever you choose to do, it is really important that you get expert financial advice.
When you are an older borrower needing a mortgage, benefiting from the advice of a mortgage adviser experienced in this area, like our team here at PIL Southampton, can really help to improve your chances of getting your mortgage application approved.
Our expert mortgage advisers are here to guide you through the mortgage process, every step of the way. You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.