Please remember that the information below is purely for reference only and should not be viewed as personal financial or mortgage advice.
Straight away, the answer is yes, you can get a mortgage over 40 years old. This does, however, depend on your situation.
According to an old survey of Mortgage Brokers by the Nottingham Building Society, almost half said that they had experienced a rise in turned down Mortgage applications from clients in their 40’s.
When directly asking customers aged between 45 & 54 who had been declined during the last two years, once again they said it was down to their age.
Here I will attempt to explain why I think people are experiencing this and what positive steps you can make if you are wanting to take a mortgage out at a later age.
To get a feel as to why these applicants feel the way they do, we need to first turn back the clock back to before the days of computerised credit scoring and increased regulation.
If you went to your local Building Society for a mortgage, you’d likely have been interviewed by the Branch Manager or a Mortgage Advisor.
They would individually assess your personal details (including how well you conducted your Current Account) and then decide whether to approve your application or not.
If you were lucky enough to get approved, you would then be advised how much earners, like yourself, could borrow. This would have been expressed quite simply as a multiple of your gross salary.
For example, if you were earning £20,000pa and the lender’s income multiple was 3.5x then you would be allowed a mortgage of £70,000.
What this income multiple methods didn’t take account of was age. Therefore, it didn’t matter if you were 30 or 50 years of age, you could be allowed to borrow the same amount of money.
Well on the face of it perhaps so, but if those 2 applicants were both due to retire at the age of 65 then applicant one would be granted a mortgage term of up to 35 years whereas applicant two only 15 years making their monthly payments much higher.
Let’s take the above £70,000 (capital and interest) mortgage and use that as an example, using a notional interest rate of 5%:
So here now we have two identical earners with the same mortgage debt, but applicant two’s monthly payment is considerably higher.
If interest rates suddenly shot up, then the risk (and that is what this is all about) of an arrears situation occurring is greater for applicant two than applicant one.
Therefore, modern mortgage calculators now consider the maximum term of the mortgage (i.e. your Age) as well as your income and expenditure.
A while back the BBC contacted me for a comment on the Nottingham Building Society’s study and I advised them that it’s not so much that older customers are being turned down as such, but that they are being told that they can borrow less than what they were expecting.
Of course, the irony of this situation is that we are constantly being reminded that we are going to have to work until a later age by the Government before we qualify for our State Pension.
The Banks on the face of it don’t seem to be taking this into account when granting mortgages, so let’s explore this further:
Firstly, there are some occupations with manual work involved where you wouldn’t be physically able to work into your seventies and beyond.
Also, the lenders are closely monitored by the Regulator in terms of repossessions and arrears cases and it looks very bad on them when these occur. Taking a property into possession is a very expensive process which also attracts bad press that lenders don’t want or need.
In terms of mortgages for more mature applicants, you can be assured that they don’t want to be seen kicking a little old lady/man out of her family home because she couldn’t afford her payments!
The good news is that lenders will consider granting mortgages past normal retirement ages but only if you can demonstrate affordability after you have retired.
This would normally be a letter from your Pension provider with a projection of your future income. An issue here can be that virtually everyone reading this will likely take a reduction in income at retirement.
Therefore, the lenders will need you to prove that you can afford your mortgage from that reduced income.
In practice, this hardly ever works unless you require only a very small mortgage (in which case you probably wouldn’t need to stretch it past your retirement age anyway).
You may recall that the default retirement age was scrapped in 2011 and your Employer can no longer force you to retire.
As such whilst some lenders use the State Retirement age as the age that you must have your mortgage paid off it has become more normal for them to let you self-declare the age that you intend to retire.
There will be a plausibility check though, so if you are a firefighter declaring an intended retirement age of 72 that would likely be knocked back.
But one time I did come across a case where one of the major lenders had agreed on a 9-year mortgage for a 66-year-old Accountant (obviously a non-manual job) who intended to retire at 75.
In terms of things you can be doing, if you find yourself in this position, you must prepare to be questioned on how you will afford your mortgage in later years.
Consumer protections and regulations are in place to protect consumers and encourage prudent lending. If you need the mortgage term to run past your normal state retirement age you will need to demonstrate how you will sustain payments and provide proof if requested.
If you are a first time buyer, or looking to move home please don’t hesitate to contact us or book your free mortgage appointment online.