Over 60s wanting to apply for a mortgage would be forgiven for not knowing which way to turn. Historically, high street lenders typically didn't want anything to do with mortgages for over 60s or mortgages for pensioners. Five to ten years ago they changed their tune and retirement mortgages became more mainstream as lenders began to understand that people were living longer, and working longer, so over 60s were not considered such a high risk.
Fast forward to 2014 and the Financial Conduct Authority introduced a new set of lending rules (the Mortgage Market Review) which resulted in some lenders reshaping the mortgage market for over 60s yet again.
1. Why has the Mortgage Market Review (MMR) impacted mortgages for older people more than other groups?
The new MMR rules have been designed to prevent excessive borrowing to ensure that homeowners can afford to pay back their loan now and in the future, if and when interest rates begin to rise. Consequently, borrowers' finances are being scrutinised more than ever before to ensure they have the means to make repayments for the term of their mortgage.
Whilst it wasn't the Financial Conduct Authority's intention to close the door on lending to older people, the new rules meant that some mortgage providers were concerned about lending to any type of customer with a potential risk factor attached – see Mortgage Misfits. It has been levied that some lenders have overreacted to the new rules and this has had an impact on many different groups of people, not just older borrowers. However, the resultant effect is that people over 60, and even those in their 50s and 40s, may find it harder to secure a mortgage now than they did previously.
Research indicates that many people are concerned about the availability of mortgages to older people
2. Why are older people deemed to be a higher risk?
The main risk factor is around the ability to make repayments until the end of the mortgage term, and consideration of what would happen to a spouse if their partner's pension is removed. If a homeowner applies for a mortgage that would take them from having a regular salary through to retiring on a pension, the applicant would need to provide evidence that their pension income will be sufficient to cover the mortgage repayments. It can be extremely difficult for an individual to predict and more importantly, prove their retirement date and their resulting pension income many years ahead.
However, a small number of mortgage providers take the stance that a pension is in fact more guaranteed than a salary, so a retired person's income can be considered less of a risk than a younger person's. This is because someone in employment could lose their income, or have a reduced income, for any number of reasons with little or no notice or warning.
In addition, if an individual has responsibly kept up with mortgage repayments over their lifetime and has a good credit history, this pattern is likely to continue into later life too.
With both of these factors in mind, some lenders are starting to look more favourably at lending to over 60s and beyond.
Interestingly, 18% of households believe that they will have a mortgage after they have retired but for a broader spectrum of reasons that might be imagined:
3. If older people can prove their income, can they still get a mortgage?
In theory yes but many mortgage providers rely on automated computer assessments and so there is not much flexibility to consider each case individually. In fact, dependent on the provider's application process, some systems will automatically turn customers down who don't meet a certain age criteria which is often set around the 40-45 mark for applications on a 25 year term.
Older people looking to take out a mortgage would be better to seek out a mortgage lender who is prepared to assess their mortgage application on its individual merits. This is known as manual underwriting which means real people review the initial mortgage application and sources of retirement income which is more likely to be beneficial to homeowners in this situation.
Many people are concerned that as they get older they will end up paying a higher mortgage rate than younger people:
4. What can older borrowers do to secure a mortgage?
• First of all, the homeowner should look to borrow on a term that ends before they retire as this will open up more of the market for them and potentially enable them to get a better deal.
• If that is not possible, then they will need to prove that their anticipated retirement date is plausible according to their occupation. A manual labourer for example may have some difficultly proving they can work up to the age of 85.
• They should also work out how much they need to borrow and see if they can afford the mortgage on a shorter term i.e. if the mortgage can end earlier than a standard 25 year term.
• They will also need to demonstrate details about all sources of retirement and potential retirement income.
5. Does Ipswich Building Society help over 60s and retired people access a mortgage?
You bet. We can't promise to lend to everyone but as long as taking out a mortgage later in life is deemed to be in the customer's best interests and meets our usual lending criteria, then we will consider each and every individual application as long as the repayments end before the applicant reaches the age of 85.
We are of the opinion that the new mortgage rules should not prohibit certain groups within society from securing a mortgage - we call these people mortgage misfits – the customers whom many high street lenders with automated processes find it difficult to accept.
We have always and will continue to make a firm commitment towards lending to older people - we will not treat this group any differently to a mortgage application from an individual any other age.
For more information, visit http://www.ibs.co.uk/mortgages/for/over-60s