Following on from our previous blog posts looking at later life mortgages and borrowing, we cover what you need to know about the maximum age for mortgages.
Taking out a mortgage in later life may not have crossed the minds of existing or would-be homeowners, many of whom may have hoped to be mortgage-free in their latter years or simply unaware that they might still be eligible for a mortgage.
However, in recent years, it’s become both increasingly popular and, in some cases, increasingly necessary, for borrowers to take out a new mortgage in later life.
What is later life lending?
There is no set definition of ‘later life lending’, so the meaning will depend on who is using the term but in general it often means one of two things. Firstly, it could mean offering a mortgage to someone who might usually be considered an ‘older’ candidate for a mortgage - often over the age of 50. Or secondly, it could mean lending to someone who is a little younger than this but who needs a long mortgage term, which might take the borrower up to or beyond retirement age.
Why do some mortgages have a maximum age limit?
Many mortgage lenders previously thought of older borrowers as higher risk, as after retirement they would no longer receive a regular salary at the end of each month. Whilst an individual’s income levels may not necessarily drop in retirement, when someone swaps payday for a pension, it could be trickier for lenders to determine whether that individual would be able to keep up with mortgage repayments. As there are lots of potential changes for people at retirement age (income, health, lifestyle etc.), this potentially means more risk for the mortgage lender, which is why some providers choose to set a maximum age limit.
What is the maximum age for a mortgage?
It is ultimately up to each individual lender to decide what their maximum age limit is for mortgages. The age limit is either determined by the age the applicant is when taking out the mortgage, or their age at the end of their term.
For example, one lender may refuse applications from anyone over a certain age such as over 75. Another, may refuse any applications from anyone who would be 75 by the time the mortgage term ends.
So a 60 year old individual may be accepted for a 5 year term but may be refused if they were hoping to borrow over 30 years.
What is Ipswich Building Society’s mortgage age limit?
At Ipswich Building Society we have no maximum age limit on our mortgage products taken on a capital and interest repayment method - instead, we use a manual underwriting system that takes into account individual circumstances. By simply determining a borrower's eligibility on age alone, we believe many valid applicants could be denied a mortgage. By operating a manual underwriting system we consider each applicant on a case by case basis, and if they meet our criteria, then age is not an issue. It’s a little different for our mortgages taken out on an interest only repayment basis, but even then our maximum age is 95 at the end of the mortgage term.
We understand that there are many reasons why an individual might be looking for a new mortgage in later life. Whether it’s to allow them to stay in their family home, to finance home improvements, fund a property following a divorce or separation, or to help family members get on the property ladder. We want to be able to help our customers fulfil their dreams, take the next step in life’s journey, or support their families when needed.
Why would a lender choose to have no mortgage age limit?
By having no age limit on their mortgages, lenders open up their products to a much wider group of individuals, making it easier to borrow in later life. Like us, many lenders are actively looking at ways they can support over 50s, as they realise that there is plenty of life yet to be lived and plenty of reasons that borrowing makes sense.
Many lenders have also realised that a pension is actually a more stable source of income than a salary because there is no risk of job uncertainty, no risk of a change in career with a reduced income, and no risk of health issues impacting earning ability. For these reasons, lenders have reconsidered their approach to mortgage limits and recognise that a pension can be a reliable and regular source of income.
However, it’s not just income sources that change at a certain age, outgoings often do too. That’s why many of the mortgage providers who lend to over 50s will be those that apply a manual lending approach and will review all sources of income and expenditure to make sure the mortgage applicant can afford the repayments now as well as in the future, even if interest rates and circumstances should change.
Why do some mortgage providers have specific later life mortgage products and others don’t?
Some lenders only allow older borrowers access to a select number of mortgage products - often a ‘later life’ or similarly named, set of specific mortgages. Others allow older borrowers the same products as younger borrowers.
At Ipswich Building Society, we have removed our specific later life mortgage offering, instead, making our standard residential mortgages available to all ages. This means that all borrowers have access to the same range of products, making it simpler to understand what’s on offer and find the most suitable mortgage for their circumstances. Whilst from time to time we may offer special products exclusively for older borrowers, these are in addition to, and not in place of, our full mortgage range.
Whether there is a maximum age for a mortgage will depend mostly on the lender and what they are prepared to offer but it will also take into account the individual’s circumstances and borrowing needs.
Is there anything else an older borrower should know when it comes to a later life mortgage?
In addition to a standard residential mortgage, older borrowers might also like to consider a Retirement Interest Only (RIO) mortgage. With a RIO mortgage, the borrower only pays off the interest each month, not the loan itself. By only paying off the interest, the repayments are lower but ongoing, with the capital only repaid once the property is sold, following the death of the last named borrower or a move into long term care.