It is well documented that many younger people struggle to afford a mortgage and to get onto the property ladder. But what about the other end of the age spectrum?
For many of the older generation, paying off a mortgage may be a distant memory or a soon-to-be-celebrated milestone, which will further enhance a comfortable, pension-funded lifestyle.
But that is not the case for everyone.
According to recent research by the Age Partnership, faced with the cost-of-living crisis, a growing number of over-55s are turning to equity release to pay off their mortgage.
Others can’t afford to buy a property until they are in their fifties. And some, due to changing personal circumstances such as divorce, might need a new mortgage just when they are looking to retire − perhaps without much of a pension.
So, what can the older generation expect when approaching the mortgage market?
Phil Anderson, director at Phil Anderson Financial Services, looks at some of the hurdles they may face: “There are several challenges for older people looking to get a mortgage. Lenders often require them to repay their mortgage within a shorter timeframe, which leads to higher monthly payments. This can make it more difficult to get the amount that they need to borrow.
“Interest-rate risk will often affect people of an older age more too. If you are taking out a mortgage over a shorter term, with high monthly payments, an increase in rates could have a significant impact.
“There is no doubt that the options available for a standard mortgage reduce, the older you get,” he says.
They may also feel the pressure of demonstrating affordability, as David Hollingworth, associate director, communications at L&C Mortgages, explains: “While most lenders will consider lending beyond retirement or anticipated retirement age where appropriate, they will want to be able to see that the mortgage will be affordable now and in the foreseeable future, for good reason. Income levels will often drop in retirement and making a monthly payment on a mortgage could be a drain on pension income.”
The spectre of ill health can be a major concern too, for those still working, as Lea Karasavvas, managing director at Prolific Mortgage Finance, warns: “The older you are, the more difficult it is to get income protection. You are relying on the ability to continue working without ill health to repay your mortgage, with the risk of default if your income is through work and not from your pension.”
Mortgage-free by 93
UK Finance data from Q4 2022, published this month, shows that a third of new loans extended beyond 30 years, indicating that the average mover will be well into their seventies before their loan is paid off.
But some later-life borrowers might also find that mortgage terms don’t stretch as far as they need. Hollingworth says: “Lending into retirement became one of the key points of the FCA’s mortgage market review following the credit crunch. It saw lenders typically react by limiting the maximum age at which they would consider lending, with many applying a maximum age of 70 or 75 at the end of the mortgage term. That position has shifted to a degree since then, but some lenders will still have these caps on maximum age.”
One example of a lender going well beyond a maximum age of 70 at the end of the term is the Family Building Society, which offers mortgages with an upper age limit of 95. Keith Barber, its director of business development, says: “There’s a clear need for this lending. Attitudes to debt have changed. Also, longevity has improved and people are able to have longer and more active retirements.
“Our experience is that older borrowers with pension, rental and investment income − and some with continuing earned income – are very well placed to continue servicing and repaying their mortgage.”
There have been other potentially helpful developments for older borrowers, as Hollingworth explains: “Lenders have tried to introduce more flexibility, with products such as retirement interest-only mortgages. These remove the issue of maximum age limits and allow interest-only payments to be made until the property is sold, on death or a move into long-term care. The interest payment is made each month so there is still an affordability test to be met but the lack of defined term and interest-only payments could work well for some borrowers.”
The ‘bank of son and daughter’ could also be a lifeline for some borrowers in older age brackets, says Karasavvas: “One option for the older generation is using reverse guarantors, with children guaranteeing mortgage payments for their parents, servicing the debt on their behalf.”
So, while there are challenges, there are also options, but there is an important caveat to take into consideration: “Different products will suit different needs, so advice will be at the heart of any later-life borrowing decision,” Hollingworth suggests.
Fiona Nicolson is a freelance journalist