Getting a mortgage used to be much trickier the older you got, but lenders now offer a much wider range of options to borrowers aged 50 and above.
Remortgaging is usually one of the best ways to reduce your monthly outgoings, with savings often running into hundreds, if not thousands of pounds a year – especially if you’re currently sitting on your lender’s standard variable rate (SVR). This is the rate borrowers usually automatically move onto when the term of any special deal they signed up for finishes.
If for example, you might have taken out a two-year fixed rate at 2.3% a couple of years ago. Unless you remortgage when this deal ends, you’ll then roll over onto your lender’s SVR which is likely to be much more expensive. According to financial website Moneyfacts.co.uk, the average SVR is currently 4.51% – pretty steep when you consider that the Bank of England base rate is just 0.1% and that the best two-year fixed mortgage deals are around 1.10%. To put this into pound terms, someone with a mortgage of £30,000 over 10 years could be paying £564 more in interest every year on their lender’s SVR, than they would if they remortgaged to one of the best two-year fixes out there. This figure rises to a whopping £1,884 for a mortgage of £100,000.
Many people in their 50s and 60s stay on their lender’s SVR because they think remortgaging isn’t an option that’ll be available to them because of their age. Historically, this may have been more of an issue as lenders were reluctant to provide mortgages to older borrowers, because of the risk they might not be able to cover payments if their income reduces when they retire.
Thankfully however, the age at which most lenders start to restrict lending based on age has been pushed back quite significantly in recent years with many lenders extending the maximum age they will consider at the end of the mortgage term. This means it’s crucial not to let this put you off remortgaging and potentially banking big savings.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘Lending to an older borrower is less of an issue these days than it was. Finding a lender who is prepared to consider lending to a borrower looking for a mortgage term to run even into their eighties is now fairly straightforward.”
How mortgage age limits vary
Different lenders impose different mortgage age limits, so when choosing a mortgage it’s a good idea to explore several options so you can be certain you’ve found the best deal for your needs.
If you plan to work beyond State pension age, Halifax, for example. will take your earned income into account until you reach the age of 70. You’ll need to provide them with bank statements and pension statements, showing how much retirement income you’ll receive when you stop working. Your mortgage term must finish by the time you reach the age of 80, so if you’re taking out a mortgage at the age of 60, your mortgage term can be no longer than 20 years.
Santander, however, offers mortgages up to a maximum age of 75, while for interest-only mortgages the maximum age is normally 65. It doesn’t normally lend past the date you expect to retire.
Mr Hollingworth said: “Many lenders have made some improvement to the limits they place on maximum age at the end of the mortgage term. Although some will still top out at 75 others have extended to consider those mortgages ending at 80 or 85.
“Other lenders will be more flexible where the case makes sense and will judge on the individual merits without any set maximum. For example, Family Building Society can consider a maximum age of 95 at the end of the mortgage term and Buckinghamshire Building Society and Ipswich Business don’t apply a set maximum and will assess each case individually.
“Some lenders have developed particular products aimed at older borrowers that may also offer some more flexibility on age, where the mortgage is and will continue to be affordable. Hodge Lifetime offers a mortgage to those over 50 which can be taken to a maximum age of 95. Other lenders like Marsden Building Society have specific rates aimed at older borrowers.”
The important thing to remember is that whatever the age cut off a lender has – they are still required to ensure a mortgage is ‘affordable’, taking into account any potential drop in income from retiring or reducing hours.
Does the mortgage application process differ if you’re over 50?
Taking out a mortgage in your 50s isn’t very different to getting a mortgage when you’re in your 20s, 30s or 40s. Lenders will want to check that you’ll be able to afford your payments both now and in the future.
Miles Robinson, head of mortgages at online mortgage broker Trussle, said: “Now, the mortgage process tends to be the same for those in their 50s and still earning an income, as it is for those younger than 50. For those who are retired, most lenders will want to see pension contributions when applying for a mortgage as part of their affordability criteria. Some lenders will lend to borrowers who are up to the age of 80 with pension income, and most will go up to 75 depending on the job. It’s worth noting that if you’re in a manual job, it could limit the number of lenders available to you as you might not be able to continue working into later life.”
The following types of evidence can usually be used to verify your anticipated retirement income:
Private / Company Pension Forecast Statement
State Pension Statement (this can be obtained from The Pension Service).
Any income from employment or self-employment
Ways to improve your chances of being accepted for a mortgage
If you’re worried about not being accepted for a mortgage, there are certain things you might be able to do that could help boost your chances.
See if you can improve your credit score
When lenders are deciding whether to accept your mortgage application, they will look at your credit score, which is effectively a record of how you’ve managed your debts in the past. The higher your credit score, the more likely you are to be accepted for a mortgage. Before you submit your mortgage application, you should get a copy of your credit report from one of the three main credit reference agencies, either Experian, Equifax or TransUnion (formerly Callcredit). Experian has a free service that enables you to sign up and check your credit score with them. ClearScore is another free credit checking service that accesses Equifax data and Totally Money offers a similar service using data from TransUnion.
If you’re worried that your credit score isn’t high enough, there are several ways you might be able to improve it before applying for a mortgage. Even something as simple as not being on the electoral roll can affect your score, so check you’re on it and register online here if you’re not.
You should also review the number of credit accounts you have, including credit and store cards and personal loans. If you have any accounts you no longer use, make sure you shut them down. Don’t assume that just by cutting up a credit card you’ve closed your account – you’ll need to contact your provider and let them know you want to shut it down so they can close your credit account. If you think there’s a mistake on your credit report, you can add a note to your credit file or ask the credit reference agency to remove the incorrect record.
If you’ve done everything possible to improve your credit score but you’ve had or are having financial difficulties, don’t despair, you may still be able to get a mortgage or remortgage. Find out more in our article Can I remortgage if I’m struggling financially?
Have a clear plan on how you’ll pay back your mortgage
Lenders will want to see evidence that you’ll be able to afford to pay back your mortgage both while you’re working and after you retire, so make sure you check that your retirement income will be enough to cover your monthly payments.
If your income is likely to reduce substantially when you retire, you may need to choose a shorter mortgage term that finishes whilst you are still working.
Mr Harris, of SPF Private Clients: “There is one important caveat to borrowing at whatever age you are – the income has to be sustainable to obtain the term you require. The lender will look at the plausibility of being able to make payments throughout the term of the mortgage. If the numbers don’t add up, then affordability can’t be proven and you will have difficulty getting a mortgage.”
How much could remortgaging save you?
Don’t let your age put you off remortgaging, especially as many people aged 50 or over have a decent chunk of equity in their homes, which means they are often able to access the very best rates.
As a general rule, mortgages with a 60% loan to value or less – where you are borrowing less than 60% of the property value – tend to be the most competitive, as they are considered less of a risk by lenders.
Rachel Springall, spokesman for Moneyfacts.co.uk, said: “Remortgage customers could benefit from the fall in interest rates if they are sitting on a standard variable rate, thanks to the base rate cuts, but they could make bigger savings if they switch to a low fixed rate instead.”
The best five-year fixed rate deals are currently around 1.35%. Someone with a £100,000 repayment mortgage with a 10-year term who is currently paying a typical SVR of 4.51% would see their monthly payments fall from £1,037 to £891 a month if they remortgaged to deal with a rate of 1.35%, a saving of £146 a month or £1,756 a year.
Bear in mind that most mortgages have arrangement fees, and some may also have legal fees, although many remortgage deals come with free legal work included. To maximise any potential savings, make sure you always look at the overall cost of any deal you’re considering moving to, rather than focusing on the headline rate alone. It’s also vital to check you are not subject to any early repayment charges with your current lender, which could easily wipe out any potential savings.
Other options to consider
Remortgaging to a standard mortgage isn’t the only option available to older homeowners looking to reduce costs, or who perhaps want to unlock some of their property wealth. Here, we look at two other options borrowers over 50 may want to consider.
Retirement interest-only mortgages
If you have an interest-only mortgage, for example, and are worried about how you’ll repay the capital you owe when your mortgage finishes, you might want to consider what’s known as a retirement interest-only (RIO) mortgage.
Rather than your mortgage finishing on a specific date, a RIO mortgage enables you to carry on making interest payments indefinitely so that you’re able to stay in your home without having to pay back the capital owed. The capital only has to be repaid when you die or move into long-term care and the property is sold.
Bear in mind that like any other kind of mortgage, if you don’t keep up with your monthly payments, there is still the risk of repossession. One of the main benefits of this type of mortgage is that as you’re only repaying interest and not any of the capital back, your monthly payments will usually be relatively low, and it should be easier to prove you can afford them. The downside, of course, is that the mortgage capital needs to be paid back when you die or go into long-term care, so you won’t be able to leave as much of an inheritance as perhaps you might have liked.
Lenders offering retirement interest-only mortgages are often building societies and include Leeds Building Society, Nottingham Building Society, Nationwide Building Society and Bath Building Society. There’s no minimum age requirement, but they are typically aimed at older homeowners in their 50s or 60s who are likely to find them easier to qualify for than a standard interest-only mortgage.
There are a number of fee free RIO mortgage brokers available in the market, but if you are looking for somewhere to start, we’ve partnered with Tembo Money. They can provide you with a free consultation and research the various options on your behalf to help you decide whether a RIO mortgage might be right for you.
A lifetime mortgage is a type of equity release plan, so there are no monthly interest payments to make.
Instead, the interest you owe builds up over time and only has to be paid back, together with the amount borrowed, when you either die or move into long-term care. You must seek professional advice before you can apply for a lifetime mortgage. You can find an equity release adviser via the Equity Release Council’s (the trade body for the equity release sector) website here.
You should only ever deal with equity release lenders approved by the Equity Release Council, as plans sold via its members have to come with a guarantee that you can stay in your home for as long as you want to, and that you’ll never end up owing more than the value of your home.
Bear in mind that taking equity out of your home is not without risks. The interest owed can accumulate quite substantially over time, and will reduce the value of any inheritance you might have been planning to leave. Taking a lump sum out of your property could also affect your entitlement to means-tested benefits.
You can find out more about equity release in our article Equity release: what is it and how does it work?
Where to go for mortgage help
If you’re not sure which mortgage deals you’ll be eligible for, or what age you can borrow up to, it’s worth getting expert advice from a fee-free mortgage broker. We’ve chosen to partner with Fluent Mortgages to offer fee-free advice on the various options that may be available to you based on your individual circumstances. You can request a free, no obligation callback here.
Have you remortgaged and saved money recently or are you planning to do so in the next few months? If so, we’d be interested in hearing from you. We’re also really interested in hearing from people who are on their lender’s standard variable rate and who may have been put off from remortgaging for one reason or another. You can drop us an email at [email protected] or leave a comment below.