Am I too old for a mortgage?
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Am I too old for a mortgage?
Ashleigh Halit talks us through the mortgage process for older borrowers.
What are the mortgage options for older borrowers in the UK? What are the differences between traditional mortgages and mortgages for older borrowers?
The good news is that there are options for older borrowers. We often find that people coming into their later life have stayed in the family home for many years and don’t always want to sell the property.
We also see a lot of situations where people have taken an interest only mortgage and didn’t have an adequate way to pay back the borrowing at the end. They’re stuck in a position where they need to sell the property – and they might not want to do that.
Older borrowers have more options and types of mortgages. You can have a Retirement Interest Only mortgage or an equity release mortgage. There are also standard lenders that will go up to 85 and 90 years old. It depends on the situation in terms of which option would be more suitable. They all work in different ways.
What is the maximum age limit for mortgage applications in the UK? Can older borrowers still get a mortgage if they are retired?
Yes, you can still get a mortgage if you’re retired. Some lenders will use your retirement income for affordability purposes, to determine what you can borrow on your mortgage.
If you don’t have a great income but you’ve got equity in your property, it’s often more advisable to look at an equity release mortgage, which has no income criteria. It’s very much dependent on your age, your health and the equity in your property – that’s how they work out what you can borrow.
Again, the individual circumstances would determine the advice on which route to take. It might be a Retirement Interest Only mortgage, if you’re still in receipt of some income. That could be investment income, or income from properties, from private pensions – and in fact the state pension can be included in that as well.
If that isn’t enough to generate what you need, you have the option for an equity release mortgage where there is no income requirement.
How old is too late to get a mortgage? At what age are you refused a mortgage?
It very much does depend on the lender and what age they will go up to.
On equity release, they are open to giving you a mortgage into later life – normally up to 85 years old at application. Some lenders will consider up to 90 years old.
Equity release is also a good way of looking at inheritance tax planning, as well. Sometimes it’s not that a borrower wants to take money out and switch to a new lender as they’ve come to the end of their term. It can be a tool for inheritance tax planning.
The right route is to approach a mortgage broker with an equity release licence for that advice. Not every mortgage advisor is an equity release broker. But a licensed broker will usually consider all the options. They will look at the Retirement Interest Only mortgage first, where you are paying interest each month.
With the equity release mortgage, you have an option not to make payments. Instead, the interest rolls up and at the end of the term, when you either pass away or are taken into some kind of care, the debt and interest becomes repayable.
Can you share an example of how this works?
Here’s an equity release example. If you borrowed £100,000, which incurred £100 a month interest, you might decide not to make those payments. Say you had that mortgage for 10 years, the £100 a month interest would be rolled up over the 10 year period and added to the balance that you originally borrowed. That’s what you would end up paying off.
With Retirement Interest Only, you’re paying the interest as you go along. So at the end you just owe what you originally borrowed, which is obviously a better option for most people.
Going back to inheritance tax planning, the interest roll up is actually a good way of dealing with your inheritance tax bill. I’m not obviously here to give financial advice, so if you wanted to find out more about that, I would suggest that you contact a financial advisor.
An equity release mortgage can be a useful solution in certain situations, especially where you don’t have the income to be able to take out your equity.
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Can I get a 20 year mortgage at 55?
Yes. That’s not a problem whatsoever. Again, it depends on your circumstances. If you’re working, we need to know what kind of income you receive. We would need to look at your planned retirement age – because most lenders base affordability at the age of 50 on your earned income.
If we’re taking the mortgage past state retirement age, they might want to see that you’re making contributions into a pension scheme. It very much depends on the lender’s criteria, but 50 is not very old nowadays. People are working until much later in life.
A lot of people in that age range come to us for mortgages. The important thing is to establish that you’re comfortable making the payments based on how much you’re borrowing – because paying it back over a shorter period of time means the payments will be more.
This is where the role of the mortgage advisor is really important, in determining a comfortable budget and finding a solution to meet that.
Can a 40 year old get a 30 year mortgage?
Yes, potentially. It does depend on the individual circumstances. Where you’re taking the mortgage over state retirement age, a mortgage underwriter will look at how achievable it is for you to stay in your intended profession.
If you’re a scaffolder, for example, and you want a mortgage up to age 75 or 80, the lender will want to understand how achievable that is. You might not be fit enough to do that job at the age of 75 or 80. But you may have plans to stop scaffolding at 60 and go into a supervisor role. That can seem more realistic to a lender than the manual role.
The lender needs to make sure that you can stay in employment and make the payments on that mortgage.
What are the eligibility criteria for obtaining a mortgage as an older borrower? What documentation is required?
It does depend on the type of mortgage. When you sit down with a broker, we take you through a fact-find. We obtain your personal information and address history, we take you through a budget planner and look at what you’re trying to achieve.
There tends to be a core set of documents that most mortgage brokers require: your ID, proof of address and your last three months’ bank statements. If you’re employed, we need your last three months’ pay slips, and if you’re self-employed, it’s usually your last two years’ self-assessment tax returns and tax overviews.
If you’ve got a limited company they may also ask for your last two years’ company accounts.
Somebody looking at a retirement interest only mortgage will at some stage need to prove they can pay that mortgage interest only back. So it’s a good idea to start gathering documents relating to state pensions and private pensions, because the lender will check you can continue to make the interest only repayments once you’re receiving that pension.
A really important point if you are a joint borrower is that they look at two scenarios. They’ll assess the joint application, but if we’re using pension income that doesn’t transfer on death to the surviving partner, they’ll look at the other person’s income. They make sure that if one applicant passes away, the other one can still afford to pay the mortgage.
How does the lender assess the affordability of a mortgage for older borrowers?
It will be a combination of things, depending on what type of mortgage you go for. I’ve already covered the retirement interest only mortgage and how that works. But when we’re looking at equity release, it doesn’t matter whether or not you earn an income, unless you intend to make payments.
With equity release, you can go onto interest roll up, in which case it doesn’t matter about your income. However, you can opt to make partial payments or full payments on an equity release mortgage.
If you were to do that, we would need to look at what you’re earning into retirement. Just like a Retirement Interest Only mortgage, it would be reviewed by an underwriter to justify how you’re going to do that.
But most people that take equity release don’t have a form of income. They can’t get a Retirement Interest Only mortgage and they still want to release equity from their property, so they take this option.
Are there any specific mortgage products tailored to meet the needs of older borrowers?
Older borrowers can actually obtain a standard mortgage. There are lenders that will go up to 85 and 90 years old. It depends how old the borrower is at the time of making the application and how old they’re going to be at the end of the mortgage term.
A mortgage broker would be able to guide you. Some people may be business owners and directors of a company, for example. They may not have any plans to retire from that company, and can therefore prove the affordability to take a mortgage up to the age of 85 years old.
You don’t have to be driven towards a Retirement Interest Only or an equity release mortgage just because you’re an older borrower. There are still options out there with mainstream lenders to take a standard mortgage.
We just need to be able to prove your affordability and your income. How are you going to earn it, what job role will you be performing? Is it sustainable? Is it an industry that you can continue to work in? Will your income be the same?
A lot of the smaller building societies are good with applications from clients over state retirement age, as they are more likely to do manual underwriting. We can put a case together and explain how you’re going to afford those mortgage payments. If the underwriter is comfortable with that, there’s no reason why they wouldn’t give you that mortgage.
Is it possible for older borrowers to obtain a mortgage with no income or a reduced income?
Yes. That comes back to equity release mortgages. If you don’t have any income, you would look at the equity release mortgage, which is based on your age and equity.
If you have a reduced income, it depends on how much you want to borrow. If that income is enough to get you the mortgage you’re looking for, there’s no reason why a mainstream lender wouldn’t do that for you.
My advice is to sit down with a mortgage broker, go through your circumstances and let them point you in the right direction.
How does remortgaging work if you are an older borrower?
The remortgage process is pretty much the same for any type of borrower. The key thing is your age at the time, the type of mortgage, your income and how sustainable it is.
Do you have an interest only mortgage that’s ending, and the lender’s calling the debt back in? Can we find a new lender that is willing to pay that debt off?
It will depend on the individual circumstances around affordability, your retirement plans and pension income. If it’s not affordable, we have the option of the equity release mortgage.
Can an older borrower get a Buy to Let mortgage?
Yes, an older borrower can get a Buy to Let mortgage because this is assessed on the rental income generated. Some lenders do want you to have a minimum income, while others have no income requirements.
10 years ago, a lot of lenders on Buy to Let didn’t need an income, but now we’re seeing more lenders wanting an income in place. It’s to make sure that if the property was left unoccupied, you could still cover the cost of the mortgage payment.
But predominantly, a Buy to Let is assessed based on the rent of the property. They carry out a stress test rate on the rental income. That will tell you what you can borrow. Again, if you sit down with a good mortgage broker with access to the whole of the market, they should be able to find you a solution.
What else do we need to know about later life borrowing?
We’ve covered off a lot. The positive message for people listening is that you can get a mortgage in later life. That’s a really good thing, because a lot of people want to stay in the home that they’ve worked hard for. They don’t want to sell it or necessarily downsize.
There are a lot of options to help people stay in their property and own their own home. If you don’t have any income, make sure you talk to a mortgage broker that deals with equity release.
Here at Ashleigh Green Finance, we offer all types of mortgages – Retirement Interest Only, standard mortgages and equity release. Some brokers only offer equity release and some only offer a standard mortgage.
So if you can find someone that can consider all three situations, they’ll be looking after your interests. We’re researching the whole of the market, and we can confirm which types of mortgages you may be able to get.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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