I’m 65 years old and have been in rented accommodation for a number of years now.
I have recently received an inheritance. This could provide for a £85,000 deposit against a £120,000 home.
What is the chance of getting a mortgage to fund the shortfall?
I am still working and earning approximately £24,000 per year.
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David Hollingworth replies: The short answer is yes, there is a chance of getting a mortgage. The longer answer would be that, as is so often the case, it will depend on a number of factors, individual circumstances and how the buyer would like to structure the borrowing.
Following credit crisis of 2008, one area of mortgage lending that was put under the microscope was offering loans that would still need to be repaid into the borrower’s retirement.
Lenders reacted quickly to this, and tightened their rules substantially.
The Mortgage Market Review later put requirements in place for lenders to assess the affordability of a mortgage over the whole term – not just at the time it was taken out.
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Is there a maximum age for getting a mortgage?
Although the Mortgage Market Review did not stipulate a specific age limit, many lenders set their own rules about how old a borrower could be at the end of the mortgage term.
Many enforced a maximum age of 70 or 75 at the end of the mortgage term, and those limits can still apply in some cases.
In your case, aged 65, that would mean that the mortgage would need to be repaid over a 10 year term.
The closer borrowers are to the maximum age, the more limiting it can be.
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Age limits: Many lenders have age limits at the end of the mortgage term of 70 or 75, but some have pushed their age limits to 80 or 85
Borrowing a mortgage of £35,000 at a rate of 4 per cent over 10 years would cost you £354.36 per month, whereas the same borrowing over 20 years would cost £212.09 per month.
Lenders have subsequently realised that many borrowers can sustain a mortgage for longer, and many have since become more flexible on the maximum age at the end of the term.
Some lenders have pushed their maximum age out further to 80 or 85, whereas others are even more flexible and will decide on a case-by-case basis whether the loan can be approved.
Look to smaller lenders for more flexibility
Big high street banks have in some cases improved their maximum age, but it’s often the smaller lenders that can offer more flexibility.
Some small building societies may not even have a prescribed maximum age, or they may have one that would offer plenty of latitude for a borrower of 65.
Family Building Society, for example, can consider a maximum age of 95 at the end of the mortgage term.
Some lenders have specific deals aimed at older borrowers. For example, Marsden Building Society would limit the maximum term on a standard mortgage to require it to be repaid by normal retirement age.
However, it also has products for borrowers of 55-plus that could offer more extensive terms, with the guideline for a 65 year old being up to 18 years.
There is another type of mortgage product that could remove the need for any concern about the maximum age at the end of the term.
Retirement Interest Only is a type of mortgage that works in the same way as any standard interest only mortgage, except it doesn’t impose a maximum term.
Only the interest is covered each month and the mortgage only becomes repayable from the borrower’s estate when the property is sold, on death or after a move into long term care.
These deals may be on offer from many building societies but also from lenders more specialist in this sector, such as Livemore and Hodge Bank.
Affordability
With a standard mortgage or with Retirement Interest Only there will be a need for an affordability assessment, as monthly payments will need to be made.
The lender will need to see that income will be adequate to cover the mortgage payments, now and in the future.
That’s different to the specialist equity release market where a lifetime mortgage would see the interest roll up, rather than require a monthly payment.
The lender will take account of income and outgoings, but your current income level looks like it should be enough to demonstrate affordability.
However, assuming that retirement may be on the horizon, the lender will need to assess how income levels may be affected.
Pension income will be acceptable in demonstrating affordability, but it’s worth being aware that the lender will want to see some assurances of what your post-retirement income will look like.
Shop around to find the right fit for age and affordability, but as long as those requirements can be met and the property will fit the bill, there could be every chance that a mortgage could be used to facilitate the move to ownership.
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