What you need to know if you still have a mortgage in your 50s

Holly Thomas / 10 September 2014

Existing borrowers in their 50s can be trapped into repaying mortgages with higher interest rates, as cheaper deals for older people become hard to find. Holly Thomas reports.

A growing number of homeowners are paying off their mortgages later in life resulting in many more over 50s being left with a sizeable loan remaining.

The mortgage market has changed drastically this year as banks and building societies have become super strict about lending money after an overhaul of the home loans industry.

Applying for a mortgage? Read our tips.

New rules have been introduced

In April, the Mortgage Market Review (MMR) rules were introduced aimed at stopping homeowners taking on more debt than they can afford to repay.

These rules were not intended to make life harder for existing borrowers – but it seems that is often the case.

Lenders want to know the ins and outs of income and expenditure and have taken to making assumptions about future capacity to repay loans.

For older people, the issue is getting a loan approved when they have retirement on the horizon, when income is expected to fall.

Here's what you need to know if you have an outstanding mortgage:

What’s happening?

Recent reports have accused lenders of denying customers in their 40s and 50s new and cheaper deals, claiming they would not be able to afford the loan repayments when they retire.

This means existing borrowers in their 50s are trapped repaying loans with higher interest rates that will lead to big bills during retirement.

The Bank of England base rate has been so low that many will be on variable rate deals and even on their lenders' standard variable rate (SVR) enjoying low repayments.

With an impending interest rate rise from the Bank, many will be considering a fixed rate loan to protect against a hike to monthly repayments.

Learn more about Saga's equity release service...

Lenders' policy

Getting a mortgage is more challenging than it used to be and the lenders have certainly tightened their acceptance criteria for older people in the last few years.

Aaron Strutt at Trinity Financial said: "Banks and building societies typically don't want to lend into retirement, so they will often asked for the mortgage to be repaid by your 70th or 75th birthday.

"Lenders are asking for proof of pensions and investments to show how they will pay for the mortgage once they stop working."

The nearer a borrower is to that maximum age the more it will limit the term that the borrower can take and that will have a knock on in terms of affordability.

Adrian Anderson, director of mortgage broker Anderson Harris, said: "Since the MMR, many lenders insist that the mortgage is paid off by the age of 65 or 70, depending on their criteria.

"So if you are taking out a mortgage in your 50s, the term might have to be shorter than you would like. 

"This will affect affordability as you will have to pay the loan back more quickly than you otherwise might have done.

"Increasingly since MMR, many lenders are using 65 as the applicant's retirement age which makes little sense when the state retirement age is rising and most people will work on beyond this age."

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Your options

Using a mortgage broker can help with negotiating a loan approval as they can navigate the market and negotiate with lenders on your behalf.

Anderson said: "Building societies tend to be more flexible than the big traditional high-street lenders."

Alongside the changes to mortgage lending rules in the MMR, the regulator made special provisions to allow lenders to help existing borrowers get the best deal without switching to another bank.

The FCA says that lenders can omit making the strict checks for existing mortgage customers, as long as no extra money is borrowed. 

In June, the regulator reminded banks and building societies that it was unacceptable to ignore this, and said it would not tolerate lenders that treated customers unfairly.

Getting a deal with another lender

For those who want to bag a deal with another lender, there are options. David Hollingworth at London & Country, the mortgage broker, said: "Some lenders can be more flexible. For example, National Counties, Family Building Society and Bath Building Society do not have a specified maximum and will review each case on its merits."

Strutt said: "If you are planning to finish working later than the state retirement age it should actually be easier to get a mortgage."

If you don't have substantial savings to provide an income at retirement, Strutt added: "It is worth asking the lenders what terms they will offer you without providing proof of pensions and investments. 

"It might make the difference between an application for a cheaper deal being accepted or not."

If you believe that your lender has treated you unfairly, you can complain. If the bank gives an unsatisfactory response, you can take your case to the Financial Ombudsman Service who will review it independently.

Read our tips for securing a mortgage when you are over 50. 

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.