Most mortgage borrowers aim to make sure their home loan is paid off by the time they retire. The idea of repaying a mortgage without the regular income that a salary brings is not an attractive option for many.
Banks, as a rule, tend to be wary of offering mortgages to older borrowers, knowing that there is less time in terms of prime earning years for the mortgage to be repaid in.
However, there are some lenders who now offer mortgages to older borrowers and whilst few people actively plan to pay a mortgage at the end of their lives, for some it is a new financial reality.
Getting a Mortgage While on a Pension
Following the financial crisis of 2008 and the ensuing property slump, the government became very particular about enforcing responsible lending.
The kind of borrowing that was possible during the decade of ‘cheap money’ from 1997 onwards had resulted in many borrowers being over committed, in negative equity and facing repossession of their homes.
Lending from 2014 became even more stringent, as banks and building societies were required to conduct thorough audits of prospective borrowers’ financial means, in order to vet their suitability for borrowing.
It is of course unlawful to discriminate against a borrower on the grounds of age, just as it would be to discriminate in any other way; banks cannot refuse to lend because the borrower is too old.
However, older lenders looking for low cost mortgages are often declined based purely on repayment criteria. If a lender believes that once a borrower retires their earning potential will decline, a loan is often refused.
Options For Retired Borrowers
Attempting to borrow after having retired is therefore even more challenging for many older people seeking a mortgage.
The credit market is not completely off limits to older borrowers and several lenders offer specialist mortgage products.
In many cases, older borrowers are forced to find other means of financing a mortgage such as equity release schemes and lifetime mortgages.
Both these options are far more expensive than a regular mortgage and can result in the borrower losing ownership of the property.
Most retirees with dependents and grandchildren are concerned that the wealth they have accumulated throughout their lives, goes to their families.
Lifetime Mortgages are a loan secured against the value of a property and they are only repaid after the homeowner passes away or has to go into long-term care.
Interest is added to the loan throughout the life of the agreement and the mortgage is repaid from the sale of the property when the borrower dies or goes into care. This is a lifetime mortgage/Home Reversion Plan. To understand the features and risks, ask for a personalised illustration.
This is normally a very attractive deal for the lender who can quickly access far greater equity in the property than the value of the loan.
For borrowers without dependents, it offers a secure property for life with no obligation to repay, but for the majority of borrowers who have relatives, it is a less enticing deal. The tax-free savings that can be made by passing on wealth in an estate no longer apply.
The equity in the property, which would normally be passed on to the next generation, becomes impossible to leave to children and grandchildren.
Borrowing for older people has become more complex in the past ten years and many of the options available need to be carefully considered.
There are lenders who will cater for older borrowers but it is normally a good idea to have as complete a picture of the mortgage market as possible.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE