Tuesday, 15 January 2019

50-plus and in need of a mortgage?

Mortgage application
If you are 50 or 60 years old (or more) and thinking of moving home, you are probably thinking of ‘down-sizing’ – moving to a smaller property. If so, you probably have a house to sell that is worth more than the one you want to buy. So, you won’t need a mortgage.

But you may want to do the exact opposite. Maybe you want to ‘up-size’ and move to a bigger property. In which case, you may well need to take out a new mortgage.

So, where do you stand with getting a loan?

The normal mortgage term – the number of years you will be paying off the loan – in the UK is 25 years. And with rising house prices making property purchase increasingly difficult, 30-year terms are becoming common.

If you are 50 years old or more already, 25 or 30 years will probably take you well into retirement (although many of us, from choice or necessity, are working well beyond the age at which previous generations retired). Will a lender be willing to give you a mortgage if you may not have a salary with which to repay it?

Lenders see offering you a mortgage becoming riskier as you get older. They need to be sure they will get their money back – without taking drastic steps such as repossessing your house. They must also follow the Mortgage Market Review (MMR) rules, which mean they have to make sure you can keep up with repayments over the full term of the mortgage.

As we all know, what you earn is one of the key factors in deciding how big a mortgage you can obtain. So how do lenders view people who may not be earning a salary at all during the period of the loan?

The good news is that an increasing number of lenders are willing to look at mortgages that will take you well into your 80s – or even your 90s. We are all (if we’re lucky) living longer nowadays and the financial services industry is adapting to the changes.

Some lenders, though, still have lower age limits. They may well insist that if you want to take out a mortgage aged 50 or more, you take it out over a short term – say 15 years – so that the majority (if not all) of the repayment period is while you are still earning.

Of course, a shorter term on your mortgage means more expensive monthly repayments, so this may not be ideal. Especially if you will be paying from a pension.

On the other hand, taking on a 25 or 30-year mortgage later in life is not necessarily a good option either. Financial planners usually recommend that you eliminate as much of your debt as possible before retirement. By reducing debt, or ideally becoming debt-free, you will have an easier time managing daily expenses once you are living with less income.

If you can afford the higher monthly payments of a 15-year mortgage, you will ultimately save money by paying less interest over the life of the loan. And by paying off the mortgage more quickly, you could eliminate mortgage debt early in your retirement years, or even before you retire.

Whether you are going for 15 years, 30 years or some other term, it is often easiest to do a deal with your existing mortgage provider rather than seek a new lender. They will usually be willing to forget about things like early repayment fees (what you need to pay if you want to end a mortgage early) if you are taking out a new mortgage with them.

But if their rules prevent them from offering you a new mortgage because of your age, you may have a problem.

One way to increase your chances of getting a mortgage in later life is to have a clear plan of how you will pay the loan back. This will not only help you to budget for making payments when you retire, to provide you with the assurance that you can afford the loan, it will give the lender that same assurance.

You will need to prove to the lender that you will have enough income to cover the repayments after you retire. If you want the lender to take account of your pension income you will have to show evidence that you are paying into a pension (or are receiving one). If you are still a few years away from retirement, you will need to show some evidence of what your pension and any other income will be once you’ve stopped working.

The lender will also want to know how you plan to cope with some of the consequences of old age. If you are one half of a couple, for example, and one of you dies, how will the surviving partner pay off the loan? What happens if one of you needs to go into a nursing home? It all may sound a bit ‘morbid’ but it is actually sensible long-term planning.

Getting some good professional advice at an early stage is well worthwhile. If you are buying a new home from a builder such as Larkfleet Homes or Allison Homes they will be able to recommend an advisor who can help you. He or she will have experience of the available options and know which banks and building societies are willing to take on older borrowers – and at what costs.