Middle-aged borrowers facing problems taking out mortgages

New lending rules affecting those in their forties and fifties are a 'major challenge'

New mortgage affordability rules mean lenders are now taking into account post-retirement income before agreeing to a mortgage term ending beyond the borrower’s retirement date.

Even those in their forties and fifties with equity and a good income must meet these additional requirements.

Figures from the Mortgage Advice Bureau show that lenders are increasingly specifying maximum age limits for mortgages, while Nationwide now requires borrowers who ask for their loan to run into their retirement to have a private pension.

"The new affordability rules are creating a collision between borrowers’ desire to stretch their repayment terms beyond their normal retirement age, and the requirement for lenders to carry out income-based checks to ensure that consumers can afford to repay their loans," said Brian Murphy, Head of Lending at the Mortgage Advice Bureau.

"Borrowers often seek longer repayment terms to reduce their monthly repayments and keep them as a manageable portion of their overall expenditure. However, if that term crosses over from their working life into retirement, there is still a regulatory imperative for lenders to ensure that affordability will not be compromised when regular employment income comes to an end.

"Many lenders also have a maximum cut-off age for borrowers at the end of their mortgage term, which averaged 72 across the market in June. The result is that some borrowers are left with a limited window in which to repay their mortgage, especially as housing pressures and delayed homeownership can mean people taking on a loan later in life than once was the norm."

According to MAB figures, one in five buyer searches online specified a mortgage term of 30 years or longer. Spreading the cost of a mortgage over a longer period can help satisfy lenders that customers can afford monthly repayments and over a 30 or 35 year term can reduce monthly payments by more than £100 compared with the typical 25 year term, depending on the interest rate. But it also pushes up the total cost over the lifetime of the loan, potentially adding tens of thousands to the total amount a borrower has to repay.

"Lenders are increasingly concerned as to how mortgages are going to be repaid," said Adrian Anderson, director of mortgage broker Anderson Harris, "and have particular worries about those borrowers taking on interest-only mortgages who don't have any plans in place to pay off the loan. It is harder for older applicants to get a mortgage with many lenders insisting the loan is paid off by the age of 65 or 70, depending on their criteria.

"Increasingly since Mortgage Market Review, 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.

"Given that the average age of a first-time buyer is their mid-30s, by the time many have saved up for a deposit there is not enough time to pay the mortgage back by the time they reach retirement age. Stretching the term to reduce the payments and help with affordability is not an option either. Some lenders are more flexible than others with regard to when a mortgage is paid off so if you are in an occupation where you are intending to work until you are 70, some lenders will consider this."

Brian Murphy added: "Tallying all these needs is one of the major challenges facing the mortgage market, and we are certain to see more flexibilities and new, innovative products emerging to bridge this gap. There is a real need to recognise that people are living and working longer, and we understand that efforts are in progress to explore ways to permit borrowing into retirement without turning a blind eye to affordability."

Discover more property articles at Homes and Property
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Voices
voicesApple continually kill off smaller app developers, and that's no good for anyone
Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
PROMOTED VIDEO
Arts and Entertainment
Rapper Jay Z performs on the Pyramid Stage at Glastonbury in 2008
musicSinger sued over use of the single-syllable sample in 'Run This Town'
Sport
Joel jumps over the board...and into a giant hole
footballFrom joy to despair in a matter of seconds
News
i100
Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC
tv

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Meera Syal was a member of the team that created Goodness Gracious Me
tv

Actress to appear in second series of the hugely popular crime drama

Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Volunteer your expertise as Trustee for The Society of Experimental Biology

Unpaid Voluntary Position : Reach Volunteering: Promising volunteer Trustee op...

Email Designer

£30000 - £35000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Psychology Teacher

£110 - £130 per hour: Randstad Education Reading: Psychology Teacher needed fo...

Food Technology Teacher

£85 - £120 per day: Randstad Education Cheshire: Randstad Education are curren...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week