Whether you are looking to buy a new home, free up some cash or lower your monthly outgoings, if you are an older borrower you may find that getting a mortgage is not as simple as you might have hoped.
We look at how to find a lender if you want to take out a mortgage in your late 50s, 60s, 70s or beyond.
Will the banks lend to older borrowers?
Traditionally banks and building societies have been reluctant to extend loans and mortgages to older borrowers.
Lending to anyone over 65 was viewed as risky and unprofitable, not to mention a potential PR disaster (the media would have a field-day if they repossessed the home of a pensioner).
For a long time this meant that mortgages for older borrowers were rarer than glass hammers.
However, over the last 5 - 10 years banks have started to recognise that with people living and working for longer, lending to individuals later in life can be worthwhile. Consequently they are starting to loosen their lending criteria to satisfy the increasing demand.
This means that if you are an older borrower looking to take out a mortgage you do have options. Here is how to get approved:
Still earning- prove it!
If you are approaching the UK state pension age or have already retired and are looking to take out a mortgage, you will need to prove that you have sufficient income to repay your borrowing - this is in the same way any working applicant has to show they can afford their mortgage.
Mortgage providers are most likely to want to see evidence of regular income from pensions, investments and insurance policies when you apply.
If you are concerned that your income might not be sufficient you may be able to seal the deal by finding a guarantor. However, they will need to agree to cover your repayments if you become unable to do so and show that they could afford to do this on top of their existing financial commitments.
Starting the search: Where do you begin?
Before you begin the hunt you should set out exactly what you need from your mortgage not least because applying for deals that meet your needs and requirements will increase your chances of getting approved.
Work out how much you need
To start with you need to establish how much you need to borrow and what loan-to-value (% LTV) you will require. Unless you have other funds that you plan to use as a deposit this is likely to be based upon the amount of equity you have in your home.
You will also need to give some thought to the type of mortgage deal you are looking for. For instance, if you want the security of a fixed monthly repayment over a set period then a fixed rate mortgage is likely to best suit. Alternatively, if you want more flexibility then a flexible tracker mortgage or an offset mortgage may be a better fit.
At this stage you should also consider how many years you will need to extend your mortgage over. The easiest way to work this out is to think about how much you can afford to repay each month and therefore how long it will take you to clear the loan in full.
Once you know what you want from your mortgage you can already exclude a large number of the deals on the market because they simply do not meet your needs.
Check the maximum age
Despite taking a more open stance towards older borrowers, most banks still place a maximum age limit on their mortgage deals; many also specify another age limit by which the mortgage must be repaid.
The upper age limit for new applicants is usually set somewhere between 65 and 70, although some mortgage deals may be available to people over 75.
Similarly many lenders will limit mortgage terms to ensure the money will be repaid in full by the time the borrower reaches somewhere between 70 and 85.
While it sounds relatively easy to exclude lenders that will not offer you a mortgage because of your age, or the age you will be when you finish repaying, things are not quite that straight forward.
The difficulty is that many mortgage lenders don't openly state a maximum age as it's often dependent on your income too.
This means that while it is worth checking for a maximum age upfront, you will most likely need to speak to lenders before you apply too.
Look for specialist older borrowing mortgages
You may think that the older lending market has been left untapped by the high-street lending market and you are not wholly wrong.
There are some mortgages available, mainly through mortgage brokers which are specifically designed for the older borrower.
These are well worth investigating although you are still likely to be subject to stringent affordability checks, need a large deposit and have to repay in full before you reach a set age.
Investigate equity release
If you need to borrow, own your current home and are struggling to find a mortgage, equity release may be a viable option but you should proceed with caution and make sure you do your research before committing.
Equity release mortgages differ from standard repayment mortgages in many ways and are not suitable for everyone, however if you need to free up some cash from your home they could be an option worth investigating.
Here are the main types of equity release policies on offer to older homeowners:
Roll Up, Roll Up!
One of the most common types of equity release mortgage is called a Roll Up Lifetime Mortgage. These release a cash lump sum from your property, and are repayable when you sell your home or pass away.
However, with a lifetime mortgage, the interest charged on your cash lump sum is added to your outstanding debt, slowly eating into how much of your home you actually own. This means the longer you live in your property the more you will have to pay back when you sell your home, and the less you will have to leave for your family when you pass away.
A Home Reversion Plan is where you sell a percentage of your property in exchange for a single lump sum payment and the right to live in your property rent free.
Then, when you sell your home, you need to pay the lender the agreed percentage of the sale value of your property.
The downside of this type of arrangement is that you will not benefit fully if your property increases in value between the time you take out the mortgage and the time you sell your home.
This is because you have agreed to pay the lender a percentage of your property's sale value as opposed to a fixed amount.
Home Income Plans
A Home Income Plan is where you sell a share a your home and exchange the lump sum for an annuity, which will pay you an income for the rest of your life.
However, if you are looking for a mortgage because you need a lump sum a Home Income Plan is unlikely to meet your needs.
You can find more information about the pros and cons of equity release and whether they're a suitable option for your finances by reading our guide: What is Equity Release.
Speak to a mortgage broker
Before you make a final decision on a mortgage or equity release scheme you should consider speaking to a qualified independent financial advisor.
He or she will be able to review your current financial circumstances and, if applicable, your likely situation post retirement and suggest the best options to achieve your goals.
Plus, many mortgages for older people are only available through a qualified FCA mortgage broker, so you may find that there are other borrowing options that you would otherwise have missed.
For help finding a mortgage broker read our guide: How to Interview Your Mortgage Broker Before They Start your Search, or if you are currently 65 or under and would like to speak to a FCA authorised broker in your area you can complete our mortgage enquiry form and one will be contact you.