Changes to the mortgage rules for the over-50s

Esther Shaw / 12 November 2015

It could soon be easier for the over-50s to get accepted for mortgages as building societies review their lending rules for older borrowers.

With the average life expectancy in the UK rising upwards, more and more borrowers are finding they need to access mortgage finance and borrow into retirement.

The problem is, the Mortgage Market Review, which took effect from April 2014, has forced lenders to be much stricter about who they lend to.

As a result, it has become harder to get accepted for a home loan – especially if you are in your later years. This can be the case even if you have a guaranteed final-salary pension income.

Read more about the things that affect your application for a mortgage.

Review of age limits

In a positive move, the Building Societies Association (BSA) announced that the sector has committed to reviewing its maximum age limits for mortgage borrowers.

Every building society in the UK is now set to review its rules to reflect the UK’s ageing population.

This is one of a series of recommendations set out in an interim report called “Lending into Retirement”.

The report follows growing concerns about the difficulties faced by many people – many of whom are only in their 40s – who cannot secure a deal, or remortgage from an existing home loan, because of their age.

Read more about securing a mortgage after you turn 50.

The population is getting older

The BSA report points out that the UK already has 11.6 million people over the age of 65, and predicts that by 2034, over-65s could make up around a quarter of the population.

Longer life expectancy, as well as lifestyle changes, such as divorce, mean that people are tending to buy later, and opt for longer repayment terms.

Older borrowers can struggle to borrow

Despite this, most lenders restrict lending that runs over a certain age, with some only offering loans to borrowers until they are 85, and others only until the age of 75 or 70 – or even as young as 65.

This lack of consistency can be very confusing for consumers.

Jonathan Harris from mortgage broker, Anderson Harris, says: “Older borrowers have been penalised for some time, with many lenders preferring to lend to first-time buyers with no history of making mortgage payments simply because they have longer to pay off their mortgage and more simplistic income. 

"When lenders assess mortgage applicants nearer retirement age, it gets more complicated, because income sources are often more investment portfolios and different pension funds.”

The BSA’s report states that the mortgage market must adapt to the needs of an ageing population.

It now has plans to create a guide for older borrowers with information on age limits, equity release, pension freedoms, and other financial planning matters.

Visit our property section for more articles on mortgages and the housing market.

Further report into retirement borrowing

In a separate move last week, the Council of Mortgage Lenders (CML) pledged its support for the publication of an independent research report on consumer demand for retirement borrowing.

Its aim is to improve the lending market for older borrowers.

CML data shows more than a third of new mortgages being taken out today will extend beyond the borrower’s 65th birthday.

The researchers of the report conclude that: “the current environment does not adequately meet the needs of our ageing population,” and state that both the approach to risk and the design of products needs to evolve.

In response to this, the CML has said it is vital to promote sensible and suitable mortgage finance to support both the aspirations – and potentially the social care costs – of older homeowners.

Over the next few weeks, the CML will be publishing a set of proposals designed to help the industry, regulators and government, to take some tangible steps forward in addressing some of the issues. 

What is equity release?

What is the industry saying?

The announcements on lending to older borrowers have been widely welcomed.

Jeremy Duncombe from the Legal & General Mortgage Club, says: “Encouraging lenders to relax their age limits on borrowing is a step in the right direction when it comes to innovation in the sector.

"Many of the upper age limits currently set by lenders are arbitrary and have not been reviewed for some time. Our ageing population means that this demographic is likely to grow even larger in the future, and it’s important that the borrowing needs of this group aren’t neglected.”

Nigel Waterson, chairman of the Equity Release Council, adds: “Supporting our ageing population is one of the biggest challenges facing UK financial services. These reports from the BSA and CML show a collective will to improve the outlook for older borrowers. We wholeheartedly welcome the desire to help more people benefit from their housing wealth in later life.”

What is downsizing and could it be an option for you?

Assess borrowers on affordability, not age

Campaigners have long called for lenders to assess borrowers not on age, but on whether they can demonstrate they have the means to repay their mortgage.

The point to the fact that as life expectancy increases, many people will work until later in life, allowing them to service mortgage repayments well beyond their 60s.

What are the options for older borrowers?

While building societies may have agreed to review the maximum age limits, there are, as yet, no definite plans in place to make changes.

In the meantime, there are steps you can take to improve your chances of getting accepted for a mortgage.

  • Some lenders, such as smaller building societies, will often take a more individual approach to lending decisions – and may be more welcoming to older borrowers.

  • A handful of banks have removed any specific maximum age requirement, and take a case-by-case approach instead.

  • It is worth seeking advice from a mortgage broker who may be able to help you find a more sympathetic lender.

For more articles and useful tips, visit our money and personal finance section.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.