Jumping straight into it, we can say that yes, depending on the circumstances surrounding your application, you will be able to obtain a mortgage over 40 years old.
If the mortgage term is going to extend beyond the age of retirement, the mortgage lender may wish to see a projection of what your expected pension income is going to be.
Over the years we have noticed that a lot of the instances we face with customers in or over their 40s tend to be with first time buyers in Bristol. When speaking to these customers, we also heard from a large majority that they were previously declined due to their age.
First of all, let’s take a look back at the past. Prior to the introduction of computerised credit scoring and the levels of regulation that are commonplace today, if you visited a building society in search of a mortgage, you’d probably speak to your branch manager.
From here they would take a look at your personal circumstances, including how well you have been able to manage your current account. Based on their findings, they would then decide whether or not to approve your application.
If you were accepted, you would then receive advice on the amount you could borrow, typically presented as multiple of your gross salary.
The issue here is that these income multiples didn’t account for the age of the applicant. Therefore, no matter if you were 30 years old or 50 years old, you could borrow the same mortgage amount either way.
Now at this point, you may be thinking “issue”? What issue, that seems fair? The truth is that if both applicants were due to retire at the age of 65, the outcome would be different for both individuals.
If we take a look at an example using a £70,000 (capital and interest combined) mortgage using a national interest rate of 5%:
In this example, we have two applicants who earn the same, set to retire at the same age, with the same mortgage interest rate and the same overall amount to pay back. Where it differs, is that applicant two’s monthly payment is a lot higher. Because of this, if mortgage rates happened to rise, they would be at a much greater risk of arrears and repossession.
This is the reason why modern mortgage calculators now factor in the maximum term of the mortgage (i.e., how old you are) as well as the income you bring in and how much you have regularly going out.
Even though it’s always made very clear that we will continue to work until an older age due to State Pensions, but the banks don’t seem to bear this in mind when it comes to giving out mortgages to applicants.
Lenders may potentially consider granting mortgages beyond the age of retirement, though this only tends to be if you can demonstrate your ability to afford the payments post-retirement. You are normally able to evidence this with a letter from your pension provider and a projection of your future income.
This does come with it’s own problems though, as the majority of people reading this article will likely take a reduction in income when they reach retirement. Because of this, lenders will need you to prove that even with a reduced income, you would still be able to afford your mortgage.
In practice, this hardly ever works unless you are only needing a smaller mortgage, though that would also mean you likely wouldn’t need to stretch the mortgage past your retirement age anyway as a shorter term could be affordable.
If you cast your minds back, you may recall that the default retirement age was scrapped in 2011 and you can no longer be forced to retire by your employer. As a result of this, fewer lenders are using the State Retirement age as the standard age they want mortgages to be paid off, with some even letting people self-declare their intended retirement age.
Regarding what you could be doing in order to obtain a mortgage over 40, you must prepare yourself for questions about how you will afford your mortgage later down the line.
Remember, the regulations have been put in place so they can protect consumers and encourage more careful lending from lenders.
If you need the mortgage term to run past the State Pension age, you will need to prove to the lender your expected income, so that they have confidence in your ability to maintain your monthly mortgage payments.
Please remember that the above information is purely for reference only and should not be viewed as personal financial or mortgage advice.