The good news is yes, you can get a mortgage over 40 years old, but it does come down to your circumstances.
If the mortgage term extends past your planned retirement age, then the lender might ask you to provide a projection of your pension income.
Nottingham Building Society held a study, and they indicated that almost half of the Mortgage Brokers surveyed had experienced a rise in declined Mortgage applications from clients in their 40’s. When they asked customers aged between 45 – 54 who had been rejected during the last two years, again, they said it was down to their age.
Let’s start by turning the clock back. Before the days of computerized credit scoring and the levels of regulation, we now see today. If you visited a Building Society seeking a mortgage, you’d likely get interviewed by the Branch Manager or Mortgage Advisor in Leeds. Then they would look at your circumstances, including how well you’ve managed your current account. Based upon this, they would, and they would decide whether your application was approved. If accepted, you would then get advised how much you could borrow, generally expressed as multiple of your gross salary.
However, these income multiples didn’t account for age. Therefore, whether you were 30 or 50 years old, you could borrow the same amount. Although this seems fair, if both applicants were due to retire at 65 years old, it would have different effects on both individuals. Let’s look at an example using a £70,000 (capital and interest) mortgage using a notional interest rate of 5%
For this example, we have two identical earners with the same mortgage debt, but applicant two’s monthly payment is much higher. As a result, if mortgage rates shot up, then the risk of arrears and/or repossession occurring is more significant. Getting this is why modern mortgage calculators consider the maximum term of the mortgage (i.e., you age) as well as your income and expenditure.
Even though we get reminded continuously, we will be working until an older age due to State Pensions, but the banks don’t seem to be considering this when granting mortgages.
Lenders will consider granting mortgages beyond retirement age, but only if you can demonstrate you would still be able to afford the payments after retiring. Getting this can usually get evidenced by a letter from your Pension provider with a projection of your future income. However, this can cause a problem as virtually everyone reading this will likely take a reduction in income at retirement. Therefore, the Lenders will need you to prove that you can still afford your mortgage from that reduced income. In practice, this hardly ever works unless you require only a minimal mortgage, in which case you probably wouldn’t need to stretch the mortgage past your retirement age.
You may recall that the default retirement age got scrapped in 2011, and your Employer can no longer force you to retire. As a result, fewer lenders are using the State Retirement age as the age you must have your mortgage paid off by, and more are letting people self-declare the period you intend to retire.
In terms of things you can be doing to get a mortgage over 40, you must prepare to get questioned on how you will afford your mortgage in later years. Remember, the regulations are in place to protect consumers and encourage prudent lending. If you need the mortgage term to run past your average state retirement age, you will need to demonstrate how you will sustain payments and provide proof if requested.
Please note that the above information is for reference purposes only and not viewed as personal financial or mortgage advice.
If you have any questions or require any help regarding Remortgages, Buy to let scheme or a First Time Buyer in Leeds then get in touch with one of our friendly Mortgage Advisors in Leeds, and we will be happy to help discuss the topic further.