Most of us would not consider 50 to be a ripe old age; in fact you only need to look at Madonna to know that being 50 is very much the new 30! However, many mortgage lenders have started to take a more negative view of providing mortgages to older people.
But what do they mean by old?
A number of lenders will now not allow you to have a mortgage beyond the age of 65. This means old starts at 41 if you want a 25 year mortgage term! Eeeeek! With more people starting their families in their thirties and forties, the age of the first time buyer increasing, life expectancies rising and more people working beyond retirement age, it seems frightening that old starts after your fortieth birthday.
So why are some lenders applying these restrictions?
Some lenders claim that the Mortgage Market Review (MMR) and the rules for affordability have limited their options to provide mortgages to a range of people. This means that certain groups of people, including those already with mortgages, will find it harder to meet the new affordability requirements and will struggle to get a new mortgage with their existing or another mortgage lender. The media have called these groups ‘mortgage misfits’ and for those who have no options at all ‘mortgage prisoners’. Often they are left on the lenders’ more expensive standard variable rate (which is ironic given they cannot afford their mortgage) or are unable to access the mortgage finance they need.
When talking specifically about mortgages for older people, lenders say they cannot be certain of a mortgage applicant’s future retirement date and pension income. In some joint mortgage cases they worry that should the main pension earner die, the partner will be left with an unaffordable mortgage. These are worthy concerns, however there has to be a pragmatic approach to ensuring the mortgage is right for the borrower in the long term. In reality a younger salaried couple could face the same issues, one could die without life cover or they could resign from their job tomorrow.
Shouldn’t you want to pay your mortgage off when you retire?
Of course we all want to be free of a mortgage but access to a mortgage for older people can help them to meet the needs of themselves and their families. Research conducted by ICM Unlimited on behalf of Ipswich Building Society identified that home improvements, moving home or providing a deposit for another family member were all key reasons for wanting a mortgage in retirement. No matter what your age we all want to look after our own family and make sure they are secure and happy. So many older people want a mortgage to release funds to provide a deposit for a new home for their children or grandchildren. Sometimes mortgages for over 60s can help those in or approaching retirement to meet their changing health needs either by funding adaptations to their home or by moving home to be closer to family and friends.
What are the options for older borrowers?
All is not lost, there are lenders who will help mortgage misfits including mortgages for over 50s or those with more unusual circumstances. Often these are small regional building societies who use something called manual underwriting to assess their mortgages. This means they use people and not automated systems to make their lending decisions. This enables them to be more pragmatic with their lending decisions and to take account of a broad range of circumstances and situations. One mortgage lender has produced a video to explain how they support mortgages for older borrowers.