29 June 2021
Borrowing into retirement
With house prices rising faster than wage inflation, whether buyers like it or not there is a growing trend to purchase your first home later in life. To make it more affordable in the short term, borrowers are taking longer mortgage terms than the traditional 25 years. Some borrowers also have a specific need to raise debt later in life; for example, for inheritance tax, to preserve other investments or pay for private medical care.
Research from Hargreaves Lansdown reveals that almost one in six people expect to be over the age of 65 by the time they repay their mortgage (15 per cent). Among those aged 55 and over who still had a mortgage, one in five expected to repay it over the age of 70 (19 per cent) and 5 per cent said they would never be able to repay it.
Some lenders are more understanding of older borrowers than others. Smaller, regional building societies have always been more flexible, with some having no upper age limit, but high-street lenders are also starting to broaden their policies to allow for later repayment. Each lender sets its own risk appetite and criteria; typically, around 70 to 75 is the maximum age for taking out a mortgage, with the term usually ending when the borrower is aged between 75 and 85.
Retirement is an increasingly blurred area, as not everyone stops working at 67. Many continue to work, take consultancy, or remain a sleeping partner in a business. Lenders will need to be convinced that you can continue working into retirement and there will be longevity of income. Lending assessments are based on current and future income to ensure affordability can be met for the term of the mortgage.
There are some alternatives to traditional mortgages for older borrowers such as retirement interest-only mortgages, which are affordability-based. There is also equity release – as rates fall and products improve, this is more flexible and attractive than in the past.
As some of these products can be complex and, in the case of equity release, potentially impact the wider family as well as the borrower, it is very important to seek advice from a broker such as SPF, who is able to discuss all the options.