If you are considering applying for a mortgage or remortgage into or during your retirement, you definitely need to know about the Mortgage Market Review and the new affordability rules it has introduced. Whilst you don’t need to know the full ins and outs of this new regulation, you should be aware that as a result many lenders have decided not to lend to older people beyond the age of 65. So for those of us wanting a mortgage over 50 or a mortgage over 60 you may now find your choices are more limited. In fact even those in their 40s can be caught if they are looking to take a mortgage term going beyond their 65th birthday.
It seems that mortgage borrowers are becoming increasingly aware of this situation as research commissioned by Ipswich Building Society identified 39% of respondents as being very concerned about the availability of mortgages for older people. In fact 45% of those aged 20 – 29 were concerned – so this issue is of concern to all age groups, not just those facing the issue today.
Under the Mortgage Market Review (MMR) all lenders must ensure mortgages are affordable. This is a sensible approach, but some groups of credit-worthy borrowers have been left behind due to these changes and the response of some lenders. These are known as mortgage misfits and include older borrowers, the self-employed, contract workers and those on salaries below the national average.
Some lenders have found it hard to assess affordability under the MMR for older people as this requires evidencing when some will definitely retire perhaps a decade ahead of this date and completing complicated calculations to establish the final pension income. Often these lenders have automated systems making it harder for them to handle this type of information. However, other lenders have decided to take a different view, seeing pension income as more reliable than salaried incomes. These are usually smaller and regional building societies that use people and not computers to make their lending decisions. This enables them to handle more complex information about forecast pensions and differing sources of income. They can assess affordability pragmatically based on the individual’s circumstances.
If you are looking for a retirement mortgage or even if you are in your 40s and need a mortgage beyond the age of 65, then it may be worth considering a regional or local building society.