More help for older buyers - but what of the young?

retirement golden couple©

NATIONWIDE have announced that they'll be raising their mortgage borrowing age limit, from 75 to 85.

It means that, from July, a 60-year-old with sufficient income could potentially take out a 25-year mortgage.

The UK's largest building society made the announcement just days after Halifax raised their own age limit from 75 to 80.

Lenders say the changes reflect growing demand and an ageing population - as well as introducing the potential for longer mortgage terms for younger people who might otherwise find themselves stuck renting.

Living longer

Lenders are becoming more accepting of the idea that our increasing longevity means that many of us may need to be able to apply for a mortgage at a later age than we once might have.

This change in attitude has been encouraged by the Building Society Association (BSA) and the Council for Mortgage Lenders (CML), who've been campaigning for mortgage providers to give more help to borrowers of retirement age.

There are two problems with being an older applicant, one of which seems counter-intuitive.

Many of the outgoings we might associate with middle age - credit cards, bills, and even subscriptions - and that would usually mark us out as having a good track record when it comes to dealing with credit and money in general - can work against us when it comes to buying a house.

After the financial crisis came much more stringent mortgage checks, which came to a head in 2014, with the introduction of the Mortgage Market Review. Lenders would check every item on applicant's bank statements to ensure that they could truly afford the mortgage they were applying for.

Faced with a long list of everyday outgoings, their alarm bells would be sounded - which would result in a refusal.

Spending the pension

The other problem for "older" borrowers - in this case anyone beyond their early forties - is that seeking a 25-year mortgage could mean repayments continuing beyond state retirement age.

Ray Boulger of mortgage broker John Charcol While says that while lenders may say that they'll lend to people until they reach 70 or 75, in practice many refuse to extend the mortgage terms beyond a borrower's state pension age.

On top of that, some lenders would also insist on some seemingly logic-defying requirements.

Despite previously allowing borrowers to continue borrowing until they were 75, for example, Nationwide required those seeking a mortgage that ran into their retirement to have a private pension, regardless of whether they had other significant savings or assets.

Still restricted

Yet with more of us taking longer to get on the property ladder in the first place, the CML suggest that mortgages extending into retirement are going to become the norm, pointing to the fact that the proportion of all mortgage loans extending beyond 65 has increased to 40% - up by a quarter - in the last decade.

They add that around 60% of buyers are also taking mortgages lasting more than the standard 25 years - with some even stretching to 40-year terms.

So we should expect that many older - and younger - borrowers will therefore welcome moves to make it easier to get - or continue - a mortgage into what we currently think of as retirement age.

Nevertheless, there are still some restrictions in place with both Halifax and Nationwide.

Nationwide's new higher age limit is only applicable to existing customers seeking a loan that is less than 60% of the value of the property, up to a maximum of £150,000.

That means borrowers can only apply for a mortgage on a property worth up to £250,000 - as well as being able to find up to £100,000 from elsewhere.

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That's less of an issue for downsizers or those living in cheaper parts of the country; others will still need to be able to find up to £100,000 for the 40% they can't borrow - and prove that they'll still be able to afford repayments.

This is still a vast improvement on the previous situation, where older borrowers were often forced to lump for five or ten year mortgages with high repayments.

To give an example: a 65-year-old with a 10-year mortgage for just £100,000 at 3% would have to make monthly repayments of £966.

By contrast, if they were able to get a 20-year mortgage instead, the monthly payments would be a much more affordable £555 a month.

Halifax meanwhile, have extended their mortgage age limit to 80, and like Nationwide applicants, those applying for a Halifax mortgage beyond retirement age will need to provide solid proof of their retirement income.

Generation Rent

But then there's the problem that too few of us are saving enough for our retirements as it is, without adding in the potential cost of continued mortgage payments.

The 2016 edition of Halifax's annual Generation Rent report suggests that many younger people feel they can either save for retirement or save for a deposit for a home.

More than half (51%) of those who do manage to buy property worry that paying their mortgage will hamper their ability to save for retirement.

That could be an issue given that more than a third of Generation Rent - who are getting older themselves - say they expect to be paying off their mortgage beyond their 60th birthdays.

And as state pension age moves further towards 70, 6% think they'll still be paying their mortgage beyond that point.

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More than a third (34%) of Generation Rent say they'd be willing to extend a mortgage beyond the usual 25-year term to be able to afford it - and more than a quarter of first time buyers are now signing up to 35-year terms.

Yet despite the recognition that longer mortgage terms and higher age limits could well work for older buyers, Halifax's mortgage director Craig McKinley still appears to be warning younger buyers against going for a mortgage that last beyond 25 years.

He says that not only will this "increase the overall cost of the mortgage, but could have a potential knock on impact on their quality of life in retirement".

While well meaning, that seems to ignore the impact that one of the very real alternatives - renting for the rest of their lives - could have on that quality of life.

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