You might have heard that it’s impossible to get a mortgage as an older person - whilst it can be harder for some, it’s far from impossible.
Not all mortgage lenders have age limits for their loans, however, there are certain factors that can affect your application. Mortgage lenders tend to view older applicants as high risk, especially if you are retired. This is because it’s likely you no longer have a regular salary coming in, in addition to the likelihood of you earning less than a younger applicant (which could affect your ability to keep up with the mortgage repayments).
Mortgages are long-term loans, so the risk for an applicant increases when they are older as they may not live to the end of a 25/30 year mortgage term. Because of this factor, some lenders implement a maximum age limit to who they will lend to.
Wondering what factors will affect mortgages as an older person? Here a few things to consider when applying for a mortgage in your later years:
AFFORDABILITY
As with any mortgage application, your ability to afford the repayments is one of the most important factors for lenders to consider. Lenders perform strict affordability checks in place to make sure that you won’t struggle financially if they were to accept your application.
If you have plans to retire in the next few years, some lenders will consider your application based upon your current income and then adjust the length of the mortgage term to suit. However, if you are already retired you will need to prove that your pension will cover the mortgage repayments in addition to any other outgoings you may have.
MORTGAGE TERM LENGTH
Since some lenders will not lend to people over a certain age limit, you might find that you’re left with fewer options when it comes to the length of your mortgage term and the lenders that will take on your application. It’s highly likely that you’ll have a shorter term, which also means that your monthly payments will be higher to make up for it.
Your options will depend on 3 different factors:
When you plan on retiring
How much money you currently have in your pension pot
Your expected retirement income
LOAN-TO-VALUE
Loan-to-value (LTV) is the percentage ratio between the mortgage amount and the value of your property. For example, if you put down a 15% deposit for a house, you would need a mortgage for the remaining 85% - making your LTV 85%. It’s a term you will hear a lot when dealing with both mortgage brokers and lenders, as this is how your interest will be decided. The lower your LTV, the better your interest rate will be. Your deposit is a very important factor when finding a mortgage, as the more money you can put down upfront, the more mortgage options will be available to you. Most lenders will ask for a deposit of at least 10%.
It can understandably be quite confusing when trying to figure out what options you have, which is why it’s best to work with a mortgage broker who can help you find the best deal for your personal situation.
What about if I’m older and have bad credit?
It’s still possible to get a mortgage! As with any mortgage, it depends on which lender you go to since they all have different lending criteria for applicants with bad credit. Additionally, your options will depend on what type of credit issues you’ve had and how recent they were. For example, a few missed phone contract payments will be looked upon more favourably than a recent IVA.
Borrowing later in life can already make things difficult, and then adding bad credit on top of those difficulties can make it even tougher. We recommended that you order your credit report and look into your history to see where you might need to improve or amend anything. If your circumstances aren’t straightforward or you have instances of bad credit in your history, it would be best for you to work with a specialist mortgage broker. When a broker specialises in bad credit, they will know the ins and outs of which lenders will be likely to accept you and on what type of terms, in addition to knowing how to make your application look good to lenders.
Are Mortgage Interest Rates Affected If I’m Older?
It is possible that you will be asked to pay higher interest rates as an older borrower. By giving you a big loan later on in your life, lenders need to balance out the risk that is involved, often by charging higher interest rates to cover the potential loss of finance if you weren’t to complete the loan repayment. However, if you are applying for a standard mortgage and not one that is specific for pensioners, you could still find a competitive rate. Again, it’s better to work with a mortgage broker in order to find the best deal for you.
Mortgage Thoughts is a whole-of-market mortgage broker that specialises in cases of bad credit. We have award-winning specialist mortgage advisors with proven track records of helping people like you find the right mortgage for them. If you're thinking about applying for a mortgage, contact Mortgage Thoughts today.
