Guide to later life lending
Borrowers needing a mortgage into retirement are often routinely turned down by mortgage lenders on the basis of their age alone. This approach means over 50s needing to remortgage, and even 40-somethings buying their first property, can find it difficult to secure a home loan.
The good news is a handful of smaller lenders are waking up to the fact that older borrowers are not necessarily high risk and there are an increasing number of options for this demographic.
According to figures from the Council of Mortgage Lenders (CML), more than a third of mortgages taken out today will run beyond the borrower’s 65th birthday.
Yet despite there being increasing demand for mortgage finance in later life, many mortgage lenders are not keen on lending to the older age group.
One of the main reasons for this is a new set of rules for mortgage lenders laid down by the Financial Conduct Authority in April 2014. The Mortgage Market Review (MMR) aimed to clamp down on risky lending and has made it more difficult for anyone to be accepted for a mortgage.
A Building Societies Association study entitled “Lending into Retirement: Interim Report”, published in November 2015, found the majority of the building society sector would only lend up to the age of 75 irrelevant of circumstances or ability to pay. Perhaps more worrying is the fact that this age limit is higher than most high street banks, making building societies the best bet for older borrowers.
Building societies tend to consider applications on a case-by-case basis and be more flexible. Several societies have recently changed their policies.
Nationwide, the UK’s largest building society, announced in May 2016 that it would now lend to qualifying borrowers up to the age of 85. Smaller fry have gone even further. for example, Dudley Building Society, this year scrapped upper age limits across the society’s whole product range. The society says it considers “all borrowers to be equally worthy of consideration” and “does not discriminate by age”.
Jonathan Harris, director of mortgage broker Anderson Harris, says there are several smaller building societies and challenger banks who are looking to make headway in this market.
“National Counties Building Society, for example, will lend to borrowers up to over 90-years-old if they can demonstrate that they can afford the mortgage. It will also allow several applicants on the application, so younger people can use their income to help out parents if required or vice versa,” he says. “Furness Building Society will also look at these deals, as will Harpenden Building Society.”
Harris also pointed to Metro Bank’s approach to lending to older borrowers where their income is guaranteed – such as a good final salary pension or a rental income – as a key change.
“Metro entering the market is significant, as it offers these deals at market-leading rates, whereas the smaller building societies are looking to charge a premium on the rate,” he explains.
Other mainstream lenders such as Santander, Barclays and Halifax often won’t consider older borrowers at all. Using a broker can be a great way of finding a lender who will consider your application – a broker will know which lenders are happy to lend to certain demographic groups.
Existing homeowners struggling to remortgage past the age of 65 might want to consider equity release. This involves borrowing a lump sum against the equity in your home which is repaid when you sell your home or die.
Alternatively, home reversion plans involve selling a percentage of your property in exchange for a cash lump sum while retaining the right to live in your home rent-free.
It’s important to independent professional advice before taking an equity release or home reversion product and understand the impact any plan will have on the inheritance you’ll be able to leave.