Imagine having an immaculate credit record and a secure income, only to be locked out of some of the most competitive mortgage deals. Some older borrowers have been facing just this scenario.
'Many have felt excluded from the mortgage market, as the criteria have tightened and lenders have typically imposed a maximum age of 70 or 75 at the end of the mortgage term. But for older borrowers with good pension income, why shouldn’t they be able to take advantage of today’s super-low interest rates?', asks David Hollingworth, associate director at L&C Mortgages. 'As more of us live and work for longer, it’s likely the need for mortgage borrowing will also be required into later life. Although it’s ideal to have paid off a mortgage by retirement age when income is likely to fall, some borrowers are perfectly able to service a mortgage,' he adds.
Moneyfacts agrees: 'It can often feel as though older borrowers are penalised just for their age, regardless of their personal circumstances. With society changing and more people working well beyond their retirement age, it seems unfair that despite having the means to repay loans, they are still being barred from some of the best deals on the market'.
The Mortgage Market Review (MMR) requires lenders to ensure borrowers don’t overstretch themselves and can afford their mortgages. When a borrower approaches retirement age, lenders must carry out additional affordability checks. Some borrowers may look at private pension income, but even though more and more people are choosing to work beyond the state pension age, income from work may not be taken into consideration by lenders. 'There is clearly a need for the mortgage market to be slightly more flexible towards older borrowers; particularly as so many are now working for longer', argues Moneyfacts.
Recent figures from a Building Societies Association (BSA) report Lengthening the ladder: the future of mortgage borrowing in older age suggests approximately 470,000 people are borrowers in retirement. Based on current trends for home ownership, mortgage debt, housing equity and population change, the BSA estimates there will be a significant shift in the customer base of the mortgage market between now and 2030, with over 65s being responsible for double the mortgage debt they are today, around £40bn.
It is building societies that have been leading the lending charge on more realistic policies around assessing older borrowers’ ability to service a mortgage. More than half of the UK’s building societies now lend to borrowers up to or over the age of 80, with a good number of these having no set maximum age, but a case-by-case approach. Some building societies have invested in training their mortgage underwriters to better understand the needs of older borrowers, saying the demand in response to this removal of upper age limits is significant. Importantly, the indications are this has not increased the chances of borrowers defaulting on their loans. In fact, in many cases, it’s said the credit risk picture looks markedly better for the lender.
'Thankfully, some lenders are taking a more flexible approach on age. Skipton Building Society is one of the latest to review its criteria and has edged the maximum age up to 80 to help expand the range of options for older borrowers who can afford a mortgage', says Hollingworth. He also singles out the likes of Family Building Society, Bath Building Society and Earl Shilton Building Societies as lenders with more inclusive lending policies.
In terms of larger lenders, Nationwide Building Society increased its maximum age for mortgage maturity from 75 to 85 last year - the move enabling existing mortgage customers with retirement income to borrow up to the age of 80, with a maximum age at maturity of 85.
Such moves will almost inevitably help older family members release funds to help the younger generation onto the housing ladder. A good mortgage broker can help you survey the mortgage market for the best deals with the greatest flexibility for all borrowers, regardless of their age.
Helen Monks Takhar is a freelance writer and journalist