How do you nab a home loan that lasts until you're 85? We reveal how old different mortgage lenders will go
- Banks ease lending into older age but restrictions vary between them
- Borrowers on unpaid interest-only mortgages face a retirement timebomb
- Move to repayment deals likely to cost hundreds extra each month
- We reveal the lenders that will lend later in life and how to get a mortgage
Mortgage borrowers after over 40 have been given a major boost after banks loosened the purse strings on loans that stretch into old age.
After the financial crisis in 2008, lenders slapped strict age caps on mortgages, which blocked many older workers and pensioners from getting a deal.
Now lenders are scrapping these unfair limits and launching new offers to help customers stay in their homes for longer.
How does yours measure up? Compare how lenders cap mortgages as you age
Why 40 became too old to borrow
Before the financial crisis struck eight years ago, it was fairly simple to secure a mortgage whatever your age. Banks and building societies were less worried about when you were due to retire — and more concerned with making a tidy profit.
With house prices rocketing, there seemed very little risk to dishing out large mortgages, so checks on customers were minimal.
Many lenders, including giants Nationwide and Halifax, did not have any age restrictions in place at all.
Then the credit crunch hit. Banks and building societies became panicked and started to impose strict rules on who could borrow. They decided lending into retirement was dangerous — pensioners might not have enough income to keep funding a mortgage — so they imposed strict age caps.
These limits were as low as 65 or 70. By then you were expected to have cleared your mortgage in full.
Yet those rigid age policies quickly started to cause problems of their own. Many major firms stopped giving older borrowers standard loans for 25 years if they would still be paying it off after they retired.
Increasingly, people who wanted to move their families to a bigger home in their 40s or 50s found they were blocked from getting a deal.
These caps also caused huge problems for people on interest-only mortgages, who either couldn’t or didn’t want to pay them off on the day they retired.
And the problem was only due to get worse, with soaring house prices meaning some borrowers were having to delay buying a home until their late 30s or 40s.
Dumped: Lenders are scrapping unfair limits and launching offers to help customers stay in their homes
Strict limits are crumbling
The most significant problem facing borrowers in their 40s and 50s is moving home. At this age, your earnings are likely to peak, children are in their teenage years and you may need more space.
But moving to a larger home usually means a new mortgage.
Another issue is borrowing more against your house, for example, for a new conservatory or vital repair work. Again, you could face a completely new assessment of whether you can afford the loan — taking into account your age.
Many of the largest lenders would make you pay through the nose.
Barclays and RBS — which are among the worst for age restrictions — will let you borrow until age 70. This means for someone aged 55, the loan term will be 15 years at most, rather than 25.
When you reduce the term, your monthly repayments rocket. On Barclays’s 1.35 per cent two-year fixed-rate deal, you’d pay £589 a month on a £150,000 mortgage over 25 years. Spread over just 15 years, the monthly repayments would shoot up to £921.
For some people this would be too expensive because their incomes wouldn’t stretch that far — and the bank would reject them.
Now, after pressure from Money Mail, lenders are finally starting to loosen the purse strings.
In May, Halifax, Britain’s biggest mortgage lender, increased its age cap by five years to 80. And last week, Nationwide, the largest building society, increased its limit from 75 to 85.
Worrying: Many major firms stopped giving older borrowers standard loans for 25 years if they would still be paying it off after they retired
A dozen building societies have increased or scrapped their age caps since the end of last year. In total, 12 have no age limit at all.
To find a lender that will cater to your age, check our table above.
However, it is important to note that a high age limit — or none at all — doesn’t guarantee you’ll be accepted for a mortgage. Each lender has its own criteria you’ll have to meet.
For example, if you want to take out a mortgage that stretches further than your named retirement date, lenders will assess your pension to see if you will earn enough to cover the repayments.
Nearly all lenders will ask you for a pension projection from your provider to find out how much income you are likely to receive when you retire.
Someone in their late 40s might have one saying they’re on track for an estimated pot of £170,000, providing an income of around £10,000 a year if they bought an annuity.
Investments or income from other pots of cash can often count, too. Here it gets a bit fiddly.
Smaller lenders, particularly building societies, have teams of underwriters that assess each case individually. By contrast, big banks rely on computers that reject anyone who does not tick all of the boxes.
They can be tough on borrowers who are paid a significant portion of their salary in bonuses or receive investment income, for example.
Santander will take into account only 50 per cent of any cash you earn from your investments or any rent you receive from a property.
Market Harborough, Newbury and Stafford Railway building societies are among the best at taking into account investment income, mortgage brokers say.
‘It helps if your investments show decent levels of returns and the risk is spread out,’ says Simon Collins, of broker John Charcol.
‘Lenders get nervous if you have all of your eggs in one basket.’
Spreading your risk means having different types of investment, such as shares, government bonds, cash, property and commodities such as oil or gold. Speak to a financial adviser if you need help.
Barclays and RBS — which are among the worst for age restrictions — will let you borrow until age 70
How to survive a mortgage time bomb
Most people in their 60s and 70s will be nearing the end of their mortgage term. If you’re on a repayment deal this should mean you’re close to paying it off — unless you’ve borrowed more later in life.
There are also an estimated 1.7million outstanding interest-only mortgages across Britain.
These borrowers have been paying off just the interest on the loan each month.
This type of loan was widely sold in the Nineties and early 2000s as a cheap way of getting on to the housing ladder as the monthly repayments are lower.
For example, HSBC’s 1.99 per cent five-year fixed-rate deal costs £635 a month for a £150,000 loan on a repayment basis.
On interest-only it would cost just £249. Crucially, borrowers have to repay the entire loan when the mortgage term ends, typically after 25 years.
Many people were sold complicated investment policies called endowments to clear this debt. They paid in a small amount each month and were told the fund would grow big enough to pay off the loan.
But most endowments performed miserably, leaving borrowers tens of thousands of pounds short of the cash they needed.
Lenders are now contacting interest-only borrowers asking how they are going to pay — and many simply don’t have the cash.
That means they must try to extend their mortgage. One option is switching to a repayment deal.
If you are 60, you may be able to take a 25-year mortgage with Ipswich Building Society, Mansfield BS or Darlington BS, which all have age limits of 85.
Alternatively, find a building society without an age cap.
If you are slightly older, you may still qualify for a repayment mortgage with a shorter term.
For example, someone aged 55 with £150,000 outstanding on their mortgage might be eligible to borrow from Yorkshire Building Society, which has an age cap of 75.
Its 2.08 per cent five-year fixed-rate costs £971 a month over a 15-year term. Over ten years it would cost £1,386 a month — an extra £415.
Note that by stretching the term you end up paying more over the course of the deal.
You’d pay £174,744 over 15 years on the Yorkshire deal, but £166,270 over ten years — £8,474 less.
There are also an estimated 1.7million outstanding interest-only mortgages across Britain
If you’re already retired you’ll be asked for a pension statement showing the income you have to fund a mortgage.
To show how much state pension you receive, provide a bank statement. If you are to retire shortly, contact the Future Pension Centre by calling 0345 3000 168 for an estimate of how much you’ll receive.
Some lenders allow you to continue with an interest-only mortgage. But most have strict terms and conditions and will only consider borrowers with at least 50 per cent equity in their home.
Santander and NatWest will lend up to 50 per cent of the value of the property on interest-only and a further 25 per cent where the capital and interest is paid.
A £150,000 mortgage on a £200,000 property would mean £100,000 on repayment and £50,000 on interest-only.
If you go for Santander’s 1.64 per cent two-year fix, the repayments would be £339 in total (£136 a month interest-only and £203 repayment). Clydesdale Bank allows you to take out 75 per cent on interest-only and 5 per cent on repayment.
That means you need just 20 per cent equity in your home. But your property must be worth at least £400,000.
Interest-only Mortgage Timebomb Calculator
This calculator shows borrowers with no plan to repay an interest-only loan, or whose investments have fallen short, how much extra you may have to find if your lender forced you on to a repayment mortgage.
Best ways to pay later in life
If these options are out of reach for you, there are other ways to stay in your home. Around 2,000 borrowers a month are tapping into the equity in their houses as a solution.
Equity release is similar to a normal mortgage, but you don’t have to make monthly repayments. Instead, interest is rolled up and the loan is repaid from the proceeds of your house once you die or if you move to a care home.
It’s for over-55s only and is seen as a last resort as it’s more expensive than an ordinary mortgage. The roll-up effect tends to double your debt every 12 years.
But rates have fallen over the past couple of years.
Five years ago, the cheapest equity-release deal was 6.13 per cent. Releasing £50,000 from a £200,000 property would have cost £122,051 over 15 years. Today, Legal & General’s 4.88 per cent lifetime mortgage would cost you £103,932.
However, new equity-release deals are being launched that allow you to pay interest each month, rather than watching it roll up into a giant bill.
Hodge Lifetime offers a deal like this at 4.39 per cent. Releasing £50,000 from a £200,000 property on its retirement mortgage costs £81,775 over 15 years. That saves you £22,157 against traditional equity release.
It’s only different from interest-only because you’re tied in for life.
If you are aged 80, after five years you can stop paying interest and have it added to the debt.
There are also new options for clearing some debt in lump sums.
New lender OneFamily allows you to repay 10 per cent of the original loan amount each year without penalty.
This helps to cut your costs if you expect to receive a windfall, perhaps from an inheritance. You pay slightly extra for this option, with its fixed rate costing 5.8 per cent a year.
Before you take out equity release, it is vital to talk to your family.
And you should always consult a specialist financial adviser — you can’t afford a mistake as it’s a life-long commitment.
David Hollingworth, of broker London & Country, says: ‘It’s a big decision and taking equity out of your home can affect how much you pass on to your children and grandchildren.’
The Daily Mail, together with expert advisers Key Retirement, has produced a free guide that explains how equity release works and will help you prepare for meeting an adviser. Call 0800 531 6027 or visit keyretirement.co.uk/mail.