Straight off the bat, the answer is yes you can get a mortgage if you’re over 40. But it does depend on your circumstances.
If the mortgage term extends past your intended retirement age, then the lender may ask you to provide a projection of your pension income.
A recent study by the Nottingham Building Society has suggested that almost half of the Mortgage Brokers they surveyed had experienced a rise in declined Mortgage applications from clients in their 40’s. When they directly asked customers aged between 45 – 54 who had been declined during the last two years, once again they said it was down to their age.
WHY IS THIS HAPPENING AND WHAT CAN BE DONE?
First, let’s turn the clock back a bit. Before the days of computerised credit scoring and the levels of regulation we see today. If you visited your local Building Society seeking a mortgage, you’d likely be interviewed by the Branch Manager or Mortgage Advisor. They would look at your personal circumstances, including how well you’ve managed your current account. Based upon this they would, they would decide whether your application was approved. If accepted, you would then be advised how much you could borrow, normally 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%
• 30 year old – 35 years mortgage term – £252pm approx.
• 50 year old – 15 years mortgage term – £395pm approx
In 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 an arrears and/or repossession occurring is greater. 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 are constantly reminded 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. This can normally be 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 very small mortgage, in which case you probably wouldn’t need to stretch the mortgage 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 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 age you intend to retire.
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. Remember, the 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.
Please note that the above information is for reference purposes only and is not to be viewed as personal financial or mortgage advice.