Changing demographics mean people are living and working for longer. The rising cost of housing also means many might not get on to the ladder until they are well into their 30s, so the chances of them paying off their mortgage by the the age of 65 are slim.
The good news is that the situation has been improving of late with a number of larger banks and building societies increasing the age by which the mortgage has to be paid off by. Nationwide raised its maximum age limit to 85 in May, while soon afterwards Halifax extended its age limit to 80. Other lenders such as Santander and HSBC will lend to age 75, while RBS will lend up to 70.
Mortgage advisers should be aware that some smaller building societies in particular are excellent at lending to older borrowers as underwriting is usually completed by human beings rather than computers. Family, Dudley and Cambridge building societies, for example, actively promote lending to older borrowers. However, it is worth noting that some of the smaller building societies prefer not to lend outside their region, so only local borrowers will benefit from their flexible policy on lending up to or into retirement.
The fact lenders are being more flexible on maximum ages is encouraging although borrowers still have to prove affordability, and many older clients will need to do this out of retirement income, which can be tricky. But the advantage of being able to take out a standard residential mortgage, as opposed to equity release, is that rates are generally cheaper although the loan does eventually need to be paid off whereas this is not the case with a lifetime mortgage. Therefore affordability and how the mortgage will eventually be repaid has to be taken into account in a much more thorough way than with a lifetime mortgage.
Table: Lending for older borrowers
Lender Maximum lending age
Accord 75
Barclays 70
Clydesdale 75
Halifax 80
Lloyds 75
Metro 80
Nationwide 85
RBS 70
Santander 75
Virgin Money 75
Source: Anderson Harris
Equity release may be an option for those who can not get a standard residential deal because they are asset-rich, cash/income poor and can not afford the mortgage repayments. The equity release requests that have crossed my desk include a couple in their 70s who required the funds to extend the lease on their Mayfair apartment, for example. Another elderly couple needed to remortgage as they no longer ticked the Mortgage Market Review boxes when their mortgage with a private bank came up for renewal. And another couple in their 80s wanted to explore releasing money to gift to children for their grandchildren’s school fees.
While rates on equity release have been high in the past, low interest rates and increased competition mean they now look more competitive. Nationwide announced earlier this year that it is exploring entering the equity release market, with group retail director Chris Rhodes saying the product would likely feature ‘a decent fixed interest rate without access charges or penalties’, and a no-negative equity guarantee, meaning that people’s homes would not be repossessed.
