At a time when more people’s retirements are healthier and longer than before, it seems odd that financial choices in later life are being limited in this way. If you intend to continue working and not retire, then you may encounter issues with the type of work you do and its sustainability in later life. For example physical manual labour into your eighties may not be viable or if you choose to offer consultancy then the fluctuation of your pay may make it harder to prove your mortgage is affordable.
So why are some lenders so concerned?
It all goes back to April 2014 and the introduction of the Mortgage Market Review; this regulation introduced new affordability rules for lenders to adhere to. These rules were designed to ensure all mortgage lending is made in a responsible way and this aspiration is a positive one. However, there are a few groups of credit-worthy borrowers who unintentionally are now finding it harder to obtain a mortgage than before, these mortgage misfits include older people, the self-employed and contract workers.
Some mortgage lenders find it hard to assess these borrowers under the new affordability rules due to their automated processes that make reviewing variable income and different income sources more complex.
For example, if you are not yet retired, calculating a future retirement income can be difficult, especially if you have not yet set your retirement date.
The new pension reforms have also sparked concerns for some mortgage lenders. They are fearful that individuals may decide to spend their retirement savings rather than use these to secure a monthly income. Sadly some lenders fail to recognise that the salaried population could also easily decide to quit their jobs and hence make their mortgage unaffordable too!
There is good news though.
There are lenders who will take a pragmatic approach to lending to older people. Often these are smaller, regional building societies that use something called manual underwriting. This means they use expert individuals to assess mortgage applications and not an automated process. They can review all of your case including more complex sources of income and consider your plans regarding future pension income and working income. They still need to check the mortgage is affordable for you, but they can take a sensible view of your circumstances and credit worthiness.
Recent research conducted by ICM Unlimited, on behalf of Ipswich Building Society, showed that 39% of current mortgage holders were concerned about availability of mortgages for older people, and surprisingly a higher percentage of those aged 20-29 who were concerned at 45%.
Mortgages for pensioners - things to consider to improve your chances
If you are thinking of taking a mortgage into retirement then you should consider the following: ·
+ Do your research – it’s worth finding out which lenders will lend to older people, a quick call to ask for their maximum lending age will soon put you in the picture ·
+ Shop around – always good advice for all borrowers, but in particular look for regional building societies who often specialise in mortgages for over 50s. This overview and video is a useful description of the service you will receive from a building society ·
+ Seek help if you need it – a mortgage broker or independent financial advisor will often know which lenders are happy to lend in different circumstances and find one that best meets your needs. Some may charge a fee for their services.
Whilst mortgages for older people may be more complicated than a couple of years ago, there are options and choices available.
With kind thanks to Michelle Monck General Manager, Ipswich Building Society for writing this article.