Why are more people taking out mortgages in later life?
The government abolished mandatory retirement at 65 in 2011, meaning many people’s earning potential has been extended. In addition to this, many people throughout society are making major financial decisions later in life than was the case just a few decades ago.
The average marriage age is increasing, the cost of becoming a first-time buyer is rising out of step with wage growth, and people are having children later to focus on their careers. All of this combined has meant more people are looking to take out mortgages in later life.
Add to all this the simple fact that we are, in general, living longer, healthier lives. With many Brits remaining active well into their 80s, our lives are looking quite different to those of previous generations as we age.
You might want to take out a mortgage in later life for many reasons. For example you may wish to move, or help out a family member with a deposit for their own house and in these cases you may have more options as you have equity built up in your current home.
Alternatively, you could be looking to release some wealth that’s tied up in your home, or to take out your first mortgage after considering a lifestyle change.
There are lots of opportunities on the cards and we’ll explain your options for all eventualities.
Can I get a mortgage in later life?
Absolutely, you could be eligible to get a mortgage in later life. However you may need to carry out intensive research to find a mortgage product and lender that offer terms which suit your life situation and financial circumstances. The older you get, you will find there are less traditional mortgages available, but there is also a variety of mortgages designed for more mature borrowers.
The mortgages you will have used during your working life are trickier to secure as you move into or towards retirement age, because your income will usually fall in retirement. As a result lenders are cautious about lending to older people, as they consider them riskier borrowers.
So you will find that most lenders impose age limits on their mortgage products. The exact cut off point varies from lender to lender, and a different age limit is set for mortgage applications and the end of mortgage repayments.
You might find, for instance, that a lot of lenders set an age limit of 65 to 70 for new mortgage applications and 70 to 85 for repayments to end. Therefore, to qualify for many traditional mortgages you’d need to apply by the age of 65.
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Can you get a mortgage if you are retired?
It is possible to both take out a mortgage when you are already retired, or, take out a mortgage with a term which will expire during your retirement.
In either instance you’ll need to prove that the money you receive from your pension or that you earn in another way is enough to ensure you can meet repayments on the mortgage along with your other financial commitments.
If you are already retired you can show how much money you receive each month with your accounts. If you haven’t retired yet you’ll need to collect the following information for your mortgage application:
- Retirement date
- Pension pot income
- Total forecast retirement income (investments, property sale proceeds)
How can I improve my chances of getting a mortgage as an older borrower?
Knowing and providing evidence of your state pension payments and other projected pension or retirement income will be essential when presenting your financial case for your mortgage application.
Of course, just because you’re entering retirement doesn’t mean you’ll automatically lose all your income as you may have investments including shares, money tied up in property or part-time work. But your earning potential may start to decline later in life, so you will need to think through your financial decisions carefully.
You should also consider your credit report before applying for a mortgage application, as improving your credit score before you apply could support your application.
Get advice from a mortgage broker
Seeking out mortgage advice can be beneficial as they will have a good understanding of the mortgage market for older borrowers and will be able to lay out your options clearly.
They should have a good understanding, based on your personal circumstances, of which type of mortgages you could achieve and may suggest alternative solutions you have not thought about. In conjunction, they can ensure you consider your choice against tax, later life care and inheritance.
However, it is possible to find a good deal by yourself when comparing the options on the market, and there are some products that are only available when you approach a lender directly.
If you’re downsizing, mortgage porting could allow you to keep the same mortgage terms you agreed on the home you’ve previously owned and are now selling and ‘port’ them across to your new property.
Porting your mortgage simply means taking your existing mortgage deal and transferring it to your new home. Although most mortgages can be ported, you will have to reapply for your existing loan deal, and follow the same process as if you were applying for a mortgage for the first time.
There’s no guarantee you’ll be accepted and you will have to meet your lender’s affordability criteria for older borrowers, which is likely to be different to those you signed on your current mortgage.
Your lender will closely examine your post-retirement income, so be sure to clarify these in detail. Even if you are in the same financial position as when you were accepted for your existing mortgage, you could still be rejected based on your age.
Whether porting your mortgage or applying for an entirely new mortgage, make sure you fully understand all the fees and charges.
Equity release and lifetime mortgages
Equity release is an umbrella term for various schemes that enable you to release equity (value) of your property in retirement. The most common are lifetime mortgages.
With a lifetime mortgage you borrow money that is secured against the value of your home, whilst you still retain ownership of the property. Interest is charged on what you have borrowed and you don’t need to repay it until you die or permanently move into long-term care.
With lifetime mortgages you can
- Pay off your existing mortgage (if you have one)
- Plan your retirement
Lifetime mortgages are available to the over 55s looking to create extra money for retirement.
Lifetime mortgages come in two forms and they differ in how you decide to handle the interest you are charged on the mortgage.
- Interest roll-up – the interest from your loan accrues over the term and is added to the overall debt.
- Interest-paying – you repay the interest your loan accrues monthly or ad hoc.
With both types you can choose to take the loan in a lump sum or receive monthly payments; some will allow you to repay some of the capital debt during the term. You can usually port lifetime mortgages if you move, providing your plan still falls inside the lending criteria at the new property.
Most lifetime mortgages have no negative equity guarantee. This means that if interest on a lifetime mortgage rolls up so you owe more than your house is worth, the guarantee means you won’t need to pay back more than the value of your home.
Equity release plans are complex financial products, they cost more than standard mortgages and work in a very different way. They have a different fee structure behind them and restrictions that you need to be fully aware of.
The products are highly regulated to ensure they are suitable for those that use them. They can only be by firms and individuals who are qualified to do so, as they must make you fully aware of the long-term impact they will have on your home, your tax and inheritance.
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