Tough affordability rules pushing up age of mortgage borrowers

For decades, the traditional mortgage repayment term has been 25 years. However, tough affordability rules have seen lenders offering longer and longer-term mortgages, and now new research suggests more than a third of borrowers taking out home loans in 2017 will be paying them after their 65th birthday.

While taking out a 35- or even 40-year mortgage can help you borrow the amount you need, it could pose problems for you later on.

More than one-third of new mortgages in 2017 will extend into retirement

New figures from a leading estate agency chain have revealed that more and more borrowers are taking longer-term mortgages.

Data from Countrywide shows that a record 38% of mortgages it has arranged this year will extend beyond the borrower's 65th birthday, up from 24% a decade ago. The figures also reveal that the share of mortgages extending beyond the age of 65 has risen in eight out of the last ten years.

The Financial Times reports that “part of the explanation is affordability”. By extending the term of a new mortgage borrowers can reduce their initial monthly repayments, helping them to pass strict affordability tests. It can also help borrowers to maintain repayments at an affordable level in an environment of rising house prices.

Fionnuala Earley, Countrywide chief economist, says lenders had relaxed their rules about lending into retirement in recent years. Nationwide and Halifax are now among a number or lenders who can agree a mortgage of up to 40 years. “People are working for longer and higher pension provisions reduce the risks of lending into retirement,” she says.

However, borrowing over a longer term means that homeowners pay back significantly more in total. Consumer group Which? has calculated that a £250,000 mortgage with no product fees and an overall annual interest rate of 4.5% will cost just under £80,000 more in total when spread over 35 years rather than 25 years, even if the initial repayments are around £210 lower.

Borrowing for longer also increases the possibility that a life event may restrict a borrower's ability to repay the mortgage. “The longer someone is borrowing or the longer their term goes on, then perhaps there may be more things that happen that they may not expect, such as ill health,” Earley adds.

Experts urge borrowers to review their mortgage term regularly

Experts have urged borrowers taking out a mortgage over a longer term to consider reviewing their home loan on a regular basis to try and bring the term down.

Mortgage expert Aaron Strutt, told the FT: “If you increase the term by five years, borrowers can sometimes get the mortgage through. It’s helpful for them but it is a fudge. When clients take out longer-term mortgages we tell them to make overpayments or, when they come to remortgage, to shorten the term, because the hope is they will have more income and will be able to afford the shorter mortgage.”