Mortgage borrowing into retirement: what are your options?
Mortgage lenders aren’t keen on lending past the age of 65 – so what are the options for older borrowers?
According to figures from the Council of Mortgage Lenders (CML), more and more people need to borrow in retirement.
It found that more than a third of mortgages taken out today will run beyond the borrower’s 65th birthday.
However, less than 1% of all new mortgage lending is to over 65s. This could be because many lenders routinely turn down older borrowers, fearing they won’t be able to repay their loans.
Why are people borrowing into retirement?
There are a number of reasons why an increasing number of borrowers still have a mortgage when they reach retirement age.
Rising house prices mean people are getting onto the property ladder later and later. According to the Mortgage Advice Bureau, the average first-time buyer is now aged 37. This means they would be 62 when they paid off a typical 25-year mortgage.
But high house prices mean many borrowers are aged over 40 before they buy their first home, with anecdotal evidence of buyers in their 40s being told they are “too old” for a 25-year mortgage.
According to the Building Societies Association (BSA), around half of 25 to 34-year-olds say they may need a mortgage that lasts into retirement. The trade body said borrowing into retirement is becoming the “new normal”, rather than a niche form of lending.
Unfortunately many people also need to borrow into retirement due to divorce, either to buy a home on their own or to buy their ex-spouse out of the marital home.
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The Mortgage Market Review
New rules introduced last year mean it’s more difficult for anyone to be accepted for a mortgage – but it makes it even trickier for older people.
The Mortgage Market Review (MMR) means lenders are going through affordability checks with a fine-tooth comb and have to factor in a borrower’s financial commitments as well as their income.
The increased checks mean some homebuyers are borrowing over a longer term – as long as 35 to 40 years – to be able to afford mortgage repayments. This pushes the end date past retirement age for some.
The BSA said the mortgage market needs to change to cater for this shift in borrowing, a viewpoint backed up by Saga.
The over-50s specialist said it regularly hears from people who are stuck on uncompetitive mortgages, unable to move to a better deal simply because of an arbitrary age limit rather than their ability to pay.
The issue was brought to the fore recently when the Financial Ombudsman Service upheld a complaint against HSBC for unfairly rejecting a mortgage application on the grounds of age – the first case of its kind.
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Your options for borrowing in retirement
If you need to borrow into, or in, retirement, building societies could be a better bet than banks. The BSA argued the building society sector tends to be more flexible and willing to offer mortgages that extend into retirement.
Some building societies don’t have upper age limits, tend to take the case-by-case approach to applications, and are keen on developing long-term products that cater to first-time buyers who may need to borrow into older age.
The sector is also keen to debunk the myth that once you are over 40 you are “too old to get a mortgage”.
Whichever lender you apply to, and whatever age you are, you will need to prove that you have sufficient income to repay your loan.
For retirees, this means making sure you have evidence of regular income from pensions, investments and any income from work post-retirement.
Alternative products
Those struggling to get a mortgage, or remortgage, past the age of 65 might want to consider equity release. You’ll need equity in your home to be eligible and you can borrow a lump sum which is repaid when you sell your home or die.
'Home reversion' plans are slightly different and 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 take independent professional advice before taking an equity release or home reversion product. Read Equity release pros and cons.
Another option is a secured loan against your property. Specialist lender Shawbrook Bank has recently announced a new partnership with secured loan broker V Loans which will offer a solution for older borrowers turned down for a remortgage by mainstream lenders. As with equity release you’ll need equity for a secured loan to be an option.
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