The pension freedoms introduced by the coalition government in 2015 have given people much more choice over what to do with their retirement savings. And given the rises in property prices in Britain seen over the last two or three decades, it is no surprise that many retirees are considering using some or all of their pension funds to invest in the housing market.
One of the most common ways of doing so is through buy-to-let. But if you don’t have enough cash to buy a house or flat outright, you will probably need to borrow some money from a bank or building society in order to afford the purchase.
Securing a mortgage when over 50
Borrowing past retirement
Until recently, lenders were reluctant to offer any kind of mortgage if it meant that borrowers were still in debt after they retired.
Indeed, homeowners are still generally advised to ensure, if possible, that they have cleared their residential mortgages before they stop work. This is because their pension income is likely to be less than their earnings in employment, and this would make home loan repayments harder to afford.
Buy-to-let mortgages are different, however: repayments are usually covered not by income from work or a pension, but from the rental payments made by tenants.
As such, the age of the borrower should in theory be less important.
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Upper age limits
In practice, however, age is still a concern even for buy-to-let lenders. As with residential mortgages, customers can still face upper age limits which mean that a landlord mortgage can’t run past their 70th or 75th birthday, for example.
But even with such rules in force, buy-to-let borrowing can still be a viable option: with an upper age limit of 75, a 65-year-old landlord could take out a 10-year mortgage and then clear their debt at the end of this period by selling their property.
Buy-to-let mortgages are generally run on an interest-only basis: this means repayments only go towards paying off interest, with the original capital paid off only when the mortgage ends and the property is sold.
As a result, the monthly repayments will be the same amount regardless of how long the mortgage runs for – so borrowing over 10 years will cost no more per month than doing so over 20 or 25 years.
Good news for older borrowers
Look for more flexible lenders
Not all banks will have such strict age limit policies, especially for buy-to-let mortgages, so it is worth shopping around to find a lender which will let you borrow for longer if necessary.
At least one bank, Aldermore, says it will accept new mortgage customers up to the age of 79 while loans can be held until the borrower turns 85.
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