If you have a mortgage then like most mortgage borrowers, you’re looking forward to the day when you are mortgage free. However, with many of us living longer and working longer it’s possible that you may wish to access funds using the equity you have built up in your property. That’s why many people look to secure a mortgage that continues into retirement or beyond their retirement age. For example, it could be to fund longer term health needs, to provide a gifted deposit so a child or family member so they can get onto the property ladder, to adapt your home to meet your needs or to move to a larger property with other family members. In fact there are many reasons why you may wish to obtain a mortgage. A recent survey conducted by ICM Unlimited on behalf of Ipswich Building Society identified that 18% of households thought they may have a mortgage in retirement to move to a bigger property and 11% thought it would be to undertake major home improvements. 8% of households thought they would have a mortgage to fund a holiday home.
Recent changes in mortgage regulation have made it harder for some older mortgage borrowers to obtain a mortgage. Changes to affordability rules under the Mortgage Market Review have resulted in some lenders considering older borrowers to be at greater risk to meet the new affordability requirements. The new affordability rules are designed to ensure mortgage lending is affordable now and in the future should interest rates rise. Whilst this additional robustness is an important safety net for mortgage borrowers, it has resulted in some credit worthy groups finding it harder to obtain mortgage. These ‘mortgage misfits’ include older borrowers, the self-employed and contract workers.
There has been growing concern in the media about the impact these changes have had on the options and choices of mortgage available to older borrowers. Some lenders have stipulated that the mortgage term must end on or before the borrowers 65th birthday. This means a borrower aged 41 requesting a 25 year mortgage could be declined. Whilst it is harder to prove how much a pension may be worth in the future or to confirm an actual retirement date, some lenders do take a down to earth view on such matters. Smaller lenders, such as regional building societies use manual underwriting (human beings not computers) to assess mortgage applications. By using this approach they can consider more complex circumstances around future or current pension income and other sources of income to assess if the mortgage is affordable. Whilst there are lenders who can help older borrowers, the research conducted by ICM Unlimited identified that 45% of respondents were concerned that they would pay a higher rate of interest on their mortgage as an older borrower than younger borrowers. Whilst there is no evidence in the mortgage market to support this view, older borrowers may wish to talk with an independent mortgage broker who can search the whole mortgage market on their behalf to find the best rate and lender for them.