Mortgages for Older Borrowers
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Mortgages for Older Borrowers (Part 1)
Rita talks to us about mortgages for older borrowers.
What are the mortgage options available for older borrowers in the UK?
These are interesting times, because lenders are recognising that we’re living longer and older people still need to buy a home or move because of their circumstances.
So you can, believe it or not, take out a standard mortgage, although it does still depend on your age. The bracket really lies in your mid 50s. That’s the magic number. At around 55 you can get a standard mortgage with a high street lender, depending on how long you want the mortgage for and what the monthly payments are.
We can still do a standard mortgage taking you up to age 80 or even 90. Alternatively, there are retirement interest only mortgages, which are purely based on your pension income. Again, the magic number is 55. We would also ask about your retirement planning and what your pension looks like.
The last resort is equity release, which tends to be for a much older client, usually in their 70s to 80s.
How does age affect the mortgage approval process for older borrowers?
Again, it depends on your life stage. Are you still working? Are you retiring? The general rule of thumb with a standard mortgage is that if you’re not yet within 10 years of the state retirement age, which is at the moment 67 or 68, you could consider a standard mortgage.
For a longer mortgage, that may be based on a combination of your earned income while you’re still working and your future retirement income. If you’re within 10 years of retirement, though, most lenders will only look at your pension – because that’s what’s going to sustain your mortgage payments.
If you’re past state retirement age, you can look at retirement interest only mortgages as well, which are purely based on your pension income.
What are the eligibility criteria for obtaining a mortgage as an older borrower?
It’s more important to have an understanding of your own situation at the moment. If you’re a couple buying together, where’s the deposit coming from? What kind of property are you looking to buy for? Is it for the long term, or will you be downsizing again?
All those things need to be looked at, and more importantly, your income. Are you employed or self-employed? What is your retirement date? When are you planning to retire? Do you have a pension?
If you don’t have a pension, how likely are you to be able to afford the mortgage past retirement age? These are the same questions a bank will ask. If you’re self-employed, how are you going to maintain that business? Are you going to sell it?
There are more in-depth conversations to have, because everybody has a very different situation. You need a strong understanding of what you want to do and your long term vision.
Are there any specific mortgage products tailored to the needs of older borrowers?
Pension income is quite key. We need to know what your numbers are, so speak to your pension providers. If you’re currently working, you may already have a pension that you’re contributing to. Get your most recent statement and look at the projections.
If you’re not quite retired, what does your projected income look like from the state pension and any private pensions? Are you going to continue working? Lenders will ask what kind of job you’re doing, whether you’re employed or self-employed, and is that sustainable? Is it realistic to still be a builder in your 70s, for example?
Exploring these areas could help you get a standard mortgage, whether that’s to age 80, 90 or even 100. The default option is a retirement interest only (RIO) mortgage, which is purely based on your earnings once you retire.
At the end of a RIO mortgage, when you pass away or you go into full time care, the lender will take possession of the property, pay off the debt and any remaining equity goes back to the family. It can be quite complex, so that’s why it’s worth knowing your future plans and what would suit you.
Equity release tends to be for people who have already retired. You’ve got a sustainable pension, but it’s not quite enough to cover mortgage payments – which are needed for a retirement interest only mortgage. With equity release you’re purely releasing equity out of the house that you own.
Your borrowing is based on your age at the time. Typically you’re not servicing any mortgage payments – although you can if you want to. Otherwise, the interest rolls up, so that debt increases over time. Eventually, when you pass away or go into long-term care, the provider will then take possession of the property to recoup their debt. It could potentially mean you’ve got nothing left to give to your family. So again, that’s quite a complex area.
What is the maximum age limit for mortgage applications in the UK?
It’s basically for as long as you live. Many high street lenders will have a cap, and the default age is 70 or 75. A couple more may stretch to age 80.
Specialist lenders will look at the fact that your retirement income is guaranteed for the rest of your life – so why have an end date? That’s why I mentioned borrowing at age 80, 90 or 100. You’re going to get your pension for as long as you live.
The specialist lenders that work with older people don’t worry about age, as long as you’re doing a repayment mortgage as opposed to interest only.
Repayment is where you pay off capital and interest. so your pension will be covering those mortgage payments. If we did go to age 90, for example, by the time you hit that age, your mortgage would be fully paid off – as long as you kept up with the repayments.
If you go for interest only, you’ve only paid the interest. At age 90, the lender will expect you to pay that lump sum back, the amount you borrowed at the time. You’d need some sort of contingency plan to pay back the lender at that point. It’s slightly higher risk, but don’t be afraid. An advisor can work with you to explore the maximum you can go to.
Are there any additional requirements or criteria for older borrowers when applying for a mortgage?
Just be organised. Gather your pension statements from the company that you work for, plus private pension schemes and historic employment positions. You need to understand how much income you’re going to be earning at retirement.
That’s probably more important than your standard pay slips and bank statements – although those are also a requirement.
How does the lender assess the affordability of a mortgage for older borrowers?
It depends on the lenders’ level of detail. They obviously look at your age at the point of application and how long you want that mortgage for. They’ll see how much the mortgage will cost you today and in the future.
Some lenders will explore how sustainable your future pension is. If you’re a couple and you are both retired, they may also want to know if one person passes away, whether the other person will receive their pension. Sometimes that can be transferred to the survivor. They want to make sure the survivor can afford the mortgage on their own.
That’s why it involves quite a lot of in-depth conversations, a bit more planning and more time, but it can be done.
What are the key differences between traditional mortgages and mortgages for older borrowers? Can older borrowers still get a mortgage if they are retired?
Yes, older borrowers can get a mortgage when they’re retired, as long as their pension income looks strong. You may also receive additional benefits and allowances, and if those are sustainable, that income can boost your affordability if needs be.
The key differences are that traditional mortgages tend to have a cut-off at age 70 or 75. That is the longest a bank will expect you to be working. But older borrower mortgages are uncapped if it’s purely based on your pension income.
Is it possible for older borrowers to obtain a mortgage with no income or a reduced income?
The stronger your income, the more likelihood of you getting what you need to borrow. What I often find with older borrowers is that because they have owned a house, they have a lot of equity in the property.
For example, you may have an interest only mortgage and you’ve now reached your late 60s or early 70s, and you’ve got no means to pay it back. But you have lots of equity in the property. Depending on your income, we could look to repay that balance, because the equity will help.
But it’s very difficult if you have a reduced income. You do definitely need some sort of income, unless you go down the equity release route.
What else do we need to know about mortgages for older borrowers?
One of the biggest hesitations for older borrowers is that they took out their mortgage many years ago and they feel unfamiliar with the process. They are in a similar boat to a First Time Buyer, who can be a bit apprehensive because they’re new to the world of mortgages.
But once we’ve spoken and mapped everything out, you will have the confidence to decide whether you are heading in the right direction. If you’re in that situation where your interest only mortgage is ending and the bank will want their money back, don’t bury your head in the sand.
Talk to a broker about it as early as you can. We can look at your retirement, your pension income and look to apply for an older borrower mortgage. It might be a standard product, or retirement interest only. You can repay the bank and sleep at night.
So if you’re feeling hesitant, please don’t, because that’s what we’re here for.
Your home may be repossessed if you do not keep up repayments on your mortgage.
A lifetime mortgage is a long-term commitment which could accumulate interest and is secured against your home.
Equity Release is not right for everyone and may reduce the value of your estate.
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Mortgage for Older Borrowers (Part 2)
We continue the conversation about mortgages for older borrowers with Rita Kohli. Episode two of two, recorded in October 2024.
What documentation is required for mortgage applications as an older borrower?
There’s slightly more than you would normally have for standard applicants, because of the level of depth that a lender needs. They want to understand at what age you’re going to retire and your future incomes – typically your pension.It’s good to get organised. If you’re paying into a pension or already in receipt of one, get your pension letters. We can’t just use what goes into your bank account. Gather state pension letters and list out your private pensions. Get in touch with those providers because they can change over the years.
It’s all about getting up to date forecasts of your pension when you retire. All of those projections will be taken into consideration. You will also need the usual ID, three months’ bank statements and three months’ pay slips, if you are still working.
What factors should older borrowers consider when choosing a mortgage term?
Sometimes you don’t really have a choice, because it will depend on the lender’s maximum age. Are you working, are you part-working, part-retired or are you fully retired? That will play a part in the maximum term you can take.Some lenders allow you to take much longer terms if you’re already retired, because they view your pension income as guaranteed. It will continue, no matter how old you are. You generally can take a longer term than if you were working, because at some point we’re all going to stop working and our income will typically reduce. The decision around the term will be individual to the person at the time.
Are there any special considerations for older borrowers when it comes to interest rates?
The specialist lenders we work with purely look at later life borrowers. They could offer a standard mortgage, a later life mortgage, a retirement interest only mortgage, or an equity release product.In all of those types of mortgages, interest rates will be different. The more specialist something becomes, the higher the interest rates and potentially fees, especially if your circumstances are quite unique.
If we’re trying to maximise your affordability, because your pension income is less than your earned income, sometimes you can take a standard mortgage looking at that earned income plus your retirement income.
Very broadly, if you are within 10 years of state retirement age, lenders will consider your earned income, but they focus more on your retirement income. That will inform what category of mortgages you can get and the interest rates you can have.
How does equity release work? Is it a viable option for older borrowers?
Equity release is usually the very last resort. I generally look at everything with a holistic view. Irrespective of your age, I will look at your circumstances. For example, are you a homeowner? How much equity do you have in the house? Do you already have a mortgage? Have you got any other debts? Have you got children living with you? Have you still got dependents?We will look at whether you’re working, or retired. Your circumstances will guide us to the types of lenders we look at for later life borrowers. I’ll try and place you with a standard or a later life mortgage first, because paying back your mortgage on a monthly basis is certainly going to be better than looking at equity release.
With equity release, you’re purely releasing equity out of your home. The amount you can borrow is based on your age and the value of your property. But typically, you don’t make any monthly repayments. The interest that the bank is charging you is accrued and will continue to roll up. If you live a long time, you may not have any equity left in the property.
I look at your entire family circumstances. I’ll ask if you’ve drawn up a will, if you’ve got Powers of Attorney, and if your children are your beneficiaries, do they know that you want to do equity release?
It’s important to get the family involved. The last thing you want to do is arrange equity release, take out the debt, release the money and then you or the last survivor passes away. The children are expecting to receive the proceeds from the sale of their property – but there’s nothing left. With that family involvement there can be a lot more emotion involved, hence why I would look at equity release as a last resort.
Are there any potential drawbacks or risks associated with mortgages for older borrowers?
It depends on the type of borrowing. As I say, with equity release a huge drawback is that not making any contributions towards the equity release, it will chew up the equity in your property. It does work for some people, but it’s not for everybody. The main drawback is that there’s less inheritance for your family.Another risk is that if you decide you want to move out of the family home, and you’ve released some equity, you’re now stuck with that lender. If the property becomes too big for you and you want to downsize, you have to seek permission from the lender to move.
If you go to a cheaper property, you’d still owe the same level of debt and therefore you may not have the capacity to to move. You have to go into equity release knowing that you’re going to stay in that property for life.
With retirement interest only mortgages, you are paying monthly interest. You may have gone from having no mortgage to making payments out of your pension income. You’ve got to make sure it’s affordable and within your budget. It does normally work, because it’s interest only, which generally offers lower payments compared to repayment mortgages.
With retirement interest only, there is no end date. It finishes with you when you pass away, and the lender would recoup their debt when they sell the property. So again, there’s less inheritance to your family.
What steps can older borrowers take to improve their chances of mortgage approval?
It helps to be organised and know what your income is, what your outgoings are and have the ownership details of your property. It’s important to know what your future plans are from a financial perspective. What are your pension pots looking like? How long are they going to last?It’s a good idea to speak to an independent financial advisor to gain advice around the pots of pensions you have. The more pension incomes you have, the better your affordability for a mortgage. A lender is more likely to say yes if they know you’ve got enough income coming in to pay your mortgage.
Be organised with your bank accounts as well. If you have lots of different bank accounts, because you like to budget, they’re going to ask to see all of them. If you can narrow it down to one or two bank accounts, it makes the paperwork easier, plus auditing for underwriters as well.
How does age impact the maximum loan amount for an older borrower?
If you are in your mid 50s, you could potentially still go to a high street lender. They typically allow you to go to age 70 or 75 as working age. That’s the maximum you can have for a mortgage term.If you are reaching into your mid 60s or early 70s, we would eliminate the high street lenders straight away because we know that 70 or 75 is the maximum. We’ll look at later life lenders, who start their mortgages at 55 plus, ironically. They recognise that this is the time when you are thinking more about retirement.
Even if you are fit, strong and healthy and want to carry on working, they will set a cutoff point, depending on the job you do. They look at how practical it is for you to continue working into your 70s.
Based on what your future income looks like, typically your state pension along with your private pensions, we’ll confirm how long a term you can take and the maximum affordability.
It will always differ between lenders. They will factor in your earned income and how much you will retire on at 70 or 75. They will work out your maximum borrowing whether it’s a standard mortgage or retirement interest only mortgage, based on the mortgage products available.
What options are available in case an older borrower is unable to repay their mortgage?
The first point of call is to speak to the lender. Normally they will have internal teams to help you if you’re struggling to keep up the payments. Don’t bury your head in the sand because it just gets worse and worse.You tell the lender that you’re having financial issues and they will give you a dedicated person to talk to. They understand it’s a sensitive matter. They generally tend to do a budget plan with you, looking at what’s coming in, what’s going out and your mortgage payments.
They may work with you to start a repayment plan, with lower payments that meet your budget. It will impact your credit file though, because you’ve not been able to pay up your mortgage in full each month. But it does mean that you’ve got a repayment plan set up with them in advance.
Can older borrowers still access mortgage advice and support from a financial advisor?
Absolutely. I’d recommend you speak to a qualified advisor who has the experience of working with these providers. It’s still a relatively new area. Lenders have recognised that we are living longer and working much longer – and people’s needs are changing all the time.There’s a demographic of people that need to borrow in their 50s and early 60s. There are a lot more divorce cases at this age, unfortunately. People want to buy their own houses, or they meet a new partner and want to buy a home together. People are also looking at downsizing or upsizing.
Speaking to an advisor will allow you to explore every angle and use every bit of income to maximise affordability for you – because houses are not cheap.
Are there any government schemes or initiatives in the UK specifically designed for older borrowers looking for a mortgage?
Unfortunately not. There are lots of initiatives people would like from the government for affordable homes, regardless of age. But there’s nothing in the pipeline, unfortunately.What else do we need to know about mortgages for older borrowers?
Don’t be afraid to pick up the phone and just explore some ideas – because you just never know. Many people assume that because they’re a certain age they can’t get a mortgage, but once they talk to us, they realise they can. So don’t be afraid to explore.Your home may be repossessed if you do not keep up repayments on your mortgage. A lifetime mortgage is a long-term commitment which could accumulate interest and is secured against your home. Equity release is not right for everyone and may reduce the value of your estate.