Mortgages for pensioners – what are the options?

12 min Read Published: 23 Jun 2020

Mortgages for pensioners - what are the options?Getting a mortgage is tricky at any age but it becomes particularly complicated once you become a pensioner. Older borrowers may need a mortgage to buy a retirement property, to payoff an interest-only mortgage or just to remortgage onto a cheaper deal or clear debts. However, there is a risk of hitting a mortgage lender’s maximum age limits, which range from as low as 55 to as high as 85.

Can I get a mortgage as a pensioner?

The retirement age is currently defined as age 65 as that is when men and women become eligible for the state pension. Even if you are still working well into your 60s and 70s, the closer you are to the maximum lending ages, the harder it is to get a mortgage. Lending to an older borrower is risky for a bank as they want to know they will get some of their money back, plus it can be hard to prove your income and pass tough affordability tests if you are retired and not earning much money. Most lenders will still consider applications for those over-65 but it will become harder the older you get and the less income you are earning. A typical borrower can usually get a mortgage worth up to four times their income as long as they pass the bank’s affordability and interest rate stress tests.

A pensioner who is no longer working, therefore, may find it difficult to borrow as much as they need, as there is less income to assess, plus the lender may only want to lend smaller amounts to older borrowers. As with applications at any age, a good credit score will increase your chances of getting a mortgage. Lenders will want to assess the income you receive from pensions (both the state and private versions) as well as any income from part-time work and any savings you may have in order to prove that you can afford the repayments.

If your pension is still invested, the bank may want to see a projection of what the pot will be worth once you access it either as cash, an annuity or income drawdown. It is best to have an idea of the most appropriate product and lender for you first though as too many applications and refusals could harm your credit score, making it even harder to get a mortgage. A mortgage broker can help with this as they will have an idea of the best lenders for your situation and can save you the time and effort of failed applications.

Mortgage options for over 65s

It is possible to get a mortgage if you are not too close to the maximum age limit as long as you can meet the affordability requirements and make the repayments but it is worth remembering that there are some mortgage products that are purely focused on the over-65 market.

Retirement interest-only mortgages (RIOs)

An RIO is aimed at the older borrower market. It can be used by borrowers over age 55 to buy a property, as an alternative to equity release or for those coming to the end of a traditional interest-only mortgage so they can move to a new deal.

There is no maximum age as it is agreed that the loan will need to be paid off either once you sell the property, pass away or move into long-term care. The affordability assessment is more relaxed as it is based on only paying the interest rather than the full repayments. Read our article 'What is a retirement interest-only mortgage and should I get one'.

Lifetime mortgages

A lifetime mortgage is a form of equity release product for those over age 55 that works similarly to a remortgage but interest and monthly repayments are accrued and paid back when you die or move into a care home.

The application can be less arduous than a mortgage as the equity release provider is more concerned about the value of the property than your ability to repay. Read our article 'Lifetime mortgage v Retirement interest-only mortgage - which is best?'

Equity release

Another equity release option is a home reversion plan. These provide cash to borrowers over 60 in return for a portion or your whole property and can often provide larger amounts than a lifetime mortgage. You can continue living in the property until you die or move into a care home. Read our article 'What is equity release and how does it work'.

Remortgage

Remortgaging may be easier than getting a new mortgage if you have a lot of equity. It may be easier to pass a mortgage application with less income as the equity in your property could be used for a larger deposit which could mean a lower value loan and cheaper repayments to be assessed for.

Buy-to-let

A property portfolio is often used to supplement retirement income and over-65s can still apply for a buy-to-let mortgage depending on the lender’s maximum lending age. For example, The Mortgage Works has a maximum age of 70 for new landlords and no upper age limit for experienced ones.

A buy-to-let application is considered on an interest-only basis rather than assessing if you can afford the full repayments and is more focused on the rental income that the property achieve rather than the borrower profile, so it may be an easier process than a standard mortgage.

How to get the best mortgage deal for over 65s

As with borrowing in your younger years, a squeaky-clean credit report is helpful in making yourself look attractive to lenders. An older borrower may have already built up a strong score from years of managing credit card debt, loans or other mortgages but you should check your credit score and file for any errors.

Research is key as the older you are, the harder it can be to find a mortgage provider willing to lend. You should check a lender’s maximum age before applying as a rejection could scupper your credit score and waste your time.

It is also important to prepare your finances so you can show clear evidence of income to prove you can afford repayments. This could include private or state pensions, annuities or other savings and investments.

A mortgage broker can be helpful in saving time searching the market and helping ensure your application is successful as they will have knowledge of the most suitable lenders and how to get an approval. If you don't have a mortgage adviser in mind, check out our review of Habito, a specialist online mortgage broker. Additionally, it can be useful to get financial advice to ensure you are making the right decision as well as to discuss any alternatives that may exist. If you do not have a financial adviser, VouchedFor offers a free 30-minute financial health check with a regulated financial adviser, click on the link to find a regulated financial adviser near you.

Providers that offer mortgages for pensioners

The maximum lending ages vary among the main high street banks.

Barclays, RBS and Natwest will all lend up to age 70 and HSBC will go up to 75, Lloyds, which includes Halifax and Bank of Scotland has a maximum age of 80 and Santander will go until 85.

Building societies have tended to offer more flexible maximum lending ages than large banks.

The below data from the Building Societies Association (BSA) shows the policies of its members.

Societies that will lend up to age 80:

Furness Newcastle
Hanley Economic Skipton
Melton Mowbray Teachers
Newbury Yorkshire

Societies that will lend up to age 85:

Beverley
Market Harborough
Darlington Monmouthshire
Earl Shilton Nationwide
Ecology Scottish
Leeds Stafford Railway
Mansfield

Societies with no age limit:

Bath Ipswich
Buckinghamshire Leek United
Cambridge Loughborough
Chorley Marsden
Cumberland Penrith
Dudley Saffron
Harpenden
Tipton & Coseley
Hinckley and Rugby Vernon

Alternatives to mortgages for over 65s

Downsizing

Rather than getting a mortgage to buy a property, you could sell your home and move somewhere smaller which could release extra cash if the purchase price is cheaper than the value of your old home.

Guarantor mortgages

These are often associated with parents helping their children onto the property ladder by provider a security through either their savings, property or a personal guarantee against a mortgage. But it can also work the other way round so the younger generation could be a guarantor for someone over 65.

Access your pension

You can already take 25 per cent of your pension tax-free as cash when you retire and other withdrawals are subject to income tax under pension freedom rules introduced in April 2016.
Depending on the size of your pot, this could give you access to money without having to go through an arduous mortgage application.

 

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