How To Get A Mortgage Over 40 Years Old
According to a survey of Mortgage Brokers by the Nottingham Building Society, almost half said that they had experienced a rise in declined mortgage applications for those in their 40’s. When they asked customers aged between 45 – 54 who had been declined, they too said it was down to their age. Here we will attempt to explain why we think people are experiencing this problem and what steps can be made to get a mortgage over 40 years old.
Why Are The Over 40s Being Declined Mortgages?
To get a feel as to why these applicants feel the way they do, we need to first turn back the clock back to before the days of computerised credit scoring and increased regulation.
Back then, if you went into your local Building Society for a mortgage, you’d be interviewed by the Branch Manager or a Mortgage Advisor. They would then individually assess your application and decide whether it was approved. If your application was approved, you would then be advised how much you would be allowed to borrow. This would have been expressed as a multiple of your salary.
What this income multiple method didn’t take account of was age. Therefore, it didn’t matter if you were 30 or 50 years of age, you could be allowed to borrow the same amount of money. This seems fair, but if those 2 applicants were both due to retire at the age of 65, then applicant one would be granted a mortgage term of up to 35 years whereas applicant two only 15 years making their monthly payments much higher.
Here’s an example of the difference this makes:
- Applicant one mortgage payments on £70,000 over 35 years: £252pm approx.
- Applicant two mortgage payments of £70,000 over 15 years: £395pm approx.
In this example, we have two identical earners with the same mortgage debt, but applicant two’s monthly payment is much higher. As a result, if mortgage rates shot up then the risk of arrears and/or repossession occurring is greater. Therefore, modern mortgage calculators consider the maximum term of the mortgage (i.e. you age) as well as your income and expenditure.
The BBC contacted us for a comment on the Nottingham Building Society’s study and we advised them that it’s not that older customers are being turned down as such, but that they are being told that they can borrow less than what they were expecting.
Of course, the irony of this situation is that we are constantly being reminded that we are going to have to work until a later age before we qualify for our State Pension. The Banks on the face of it don’t seem to be taking this into account when granting mortgages.
Why It’s Hard to Get A Mortgage Over 40 Years Old
Firstly, there are some occupations with manual work involved where you wouldn’t be physically able to work into your seventies. Therefore, lenders will only consider granting mortgages past normal retirement age if you can demonstrate affordability after you have retired.
This would normally come in the form of a letter from your Pension provider with a projection of your future income. The biggest issue this causes is that most people take a reduction in income at retirement. Therefore, the lenders will need you to prove that you can afford your mortgage on the reduced income. In practice, this hardly ever works unless you require only a very small mortgage (in which case you wouldn’t need to stretch it past your retirement age).
You may recall that the default retirement age was scrapped in 2011. This means your Employer can no longer force you to retire. As such, whilst some lenders use the State Retirement age as the age that you must have your mortgage paid off, it has become common for them to let you self-declare the age that you intend to retire. This will come with a plausibility check though. However, last year we did come across a case where one lender had agreed to a 9-year mortgage for a 66-year-old Accountant. But this probably due to it being a non-labour-intensive job.
Lenders are also closely monitored by the Regulator in terms of repossessions and arrears cases and it looks very bad on them when these occur. In addition, taking property into possession is a very expensive process for them. And it’s never going to look good for them when they kick a pensioner out of their home because they couldn’t afford the payments!
Hopefully, this goes some way to describing why getting a mortgage over 40 can be difficult.