Data from the Financial Conduct Authority has revealed that the total amount of mortgage debt held by over-65s is projected to almost double from £20.1bn to £39.9bn by 2030 as a result of people buying later in life.
In its report the FCA said that the share of borrowers aged 65 or over is set to rise from one in six currently to one in four by 2050.
Getting a traditional mortgage
While some lenders have tightened their criteria regarding older lenders, there are many that will still consider offering a traditional mortgage to over-55s.
If you are looking for a mortgage you will need to be able to prove to the lender that you can make the repayments both initially and in the future. As the mortgage term may be shorter – perhaps due to a lender’s maximum age limit – your repayments may be higher. Proving affordability is therefore a key factor.
In addition, if you plan to retire before the end of the mortgage term, you will have to prove to a lender that you can afford the loan into retirement. You may need to provide evidence of pensions, investments or annuities that you intend to use to meet your monthly mortgage costs.
There are lenders who will consider lending to over-55s. Skipton have a maximum age of 80, while others who can consider older borrowers include Nationwide, which will lend to age 85, and Halifax who will lend to the age of 80.
Lloyds Banking Group raised their maximum lending age to 80 in 2016. A spokesperson said: “As the shape of the population and its working habits continue to evolve, we continually review our mortgage products and policies to ensure they reflect the needs of our customers, including those planning to work for longer and those already in retirement.”
Mutuals and building societies will often consider applications from older borrowers.
Mortgage expert David Hollingworth says: “Smaller building societies are often more flexible, and many can consider lending up to 85, such as Market Harborough, Bath Building Society and Mansfield. Leek United doesn’t have a maximum age at all.”
Another lender with no maximum age limit is Metro Bank. Industry insider Adrian Anderson says: “If you have unquestionable long-term ability to service and repay the loan through income from a buy-to-let property, investments, a pension or a trust, then Metro does not have a maximum age that the mortgage needs to be paid back by.”
The mortgages that are available to older borrowers are the same deals offered to other customers. You’ll generally have the same choice of fixed, tracker and variable rate deals as other customers.
Hollingworth adds: “In some cases lenders have loans specifically for older borrowers which may be more expensive. So, you need to shop around to make sure that you get the best rate possible.”
Lifetime mortgages
If you are over 55 and you’re in a position where making monthly mortgage repayments may be difficult for you, then lifetime mortgages are an alternative option.
Instead of making monthly repayments, a lifetime mortgage is repaid from the proceeds of the sale of your house when you die or go into long-term care.
A lifetime mortgage is a form of equity release. If you choose this option, you can opt either to pay interest monthly for as long as you wish and then switch to a roll-up plan or go straight to rolling interest up. Rolling-up interest means that interest is added to your outstanding balance.
The advantage of roll-up is that there you won’t have to make a monthly payment. This means this option can be useful if you have a low monthly income.
The disadvantage of roll-up is that interest charges compound over the years. As your interest costs rise, the equity in your home will slowly deplete meaning that there may be little equity left in later life to pay for care or to pass on to your children or grandchildren.
Always look out for lifetime mortgages from Equity Release Council approved lenders. These products come with a ‘no negative equity guarantee’ which means that, even if house prices fall, the amount that you owe will never exceed the value of your property.
Lifetime mortgage rates are also generally higher than standard mortgage rates as they factor in longevity risk, namely how long you're likely to live before the lender gets their money back.
Despite falls in rates over recent years, equity release rates are still between 3% and 6% and you will typically only be able to borrow up to around 50-55% of the value of your home.
Subsidised ownership
If you’re planning on purchasing a property from a specialist retirement provider, you may be able to access specialist mortgage finance to help you buy.
For example, a selection of Anchor developments offer two specialist mortgage schemes designed to make owning your own property even more affordable.
Under the ‘Leasehold Scheme for the Elderly’, each property is sold for 70% of market value, while you enjoy exclusive ownership and use. The remaining 30% is rent-free.
Under the ‘Shared Ownership Scheme for the Elderly’, you can buy a 25%, 50% or 75% share of your property. The proportion that can be purchased is dependent on the percentage previously owned when the property is put up for sale. Rent is payable on either 25 or 50% of the property but 25% is always rent-free.