They say life begins at 40, but can the dream of homeownership start then too?
We’ve already looked at how your age might be a hurdle to you securing a mortgage if you’re in your late teens or early 20s, but the same could also be true if you’re in your mid-40s or over.
MMR and responsible lending
April 2014 ushered in the Mortgage Market Review (MMR), which came about as a result of the financial crisis and tightened up the rules lenders must follow. These rules are to ensure that lenders take every caution to determine whether a potential borrower is able to repay their loan.
The rules are based on affordability and, in the case of mortgages, weigh up how much an applicant has by way of a deposit and how much they earn against how much their outgoings total. While age is not one of the criteria specifically included in the MMR, it can still affect a lender’s decision.
This is because if you want to take out a mortgage with a 25-year term and you’re aged 45 now, you’ll be 70 by the time it finishes – well into pension age. If you’re no longer able to work, your income could drop considerably and you may struggle to pay off the remaining few years on your mortgage term – at least, that’s the concern of the lenders when you apply.
The end of the road?
All this may leave you feeling a little gloomy if you’ve worked hard to save a deposit and want to buy your first home now you’re in your 40s. But remember – every lender has different criteria and if you’re turned down by one it doesn’t mean you’ll be turned down by them all. Last year, the Building Societies Association revealed that mortgage lenders were set to re-look at their borrowing age limits. Indeed some lenders have already announced they are changing their policy on age limits on mortgages.
However, there may still be compromises. You could find that you’re offered a mortgage with a shorter term and higher payments than you were hoping to pay, or there may be a higher rate of interest charged, and you should factor all of this into your calculations when you work out how much you can afford to pay each month on your new home.
Times are changing
All this might sound a little bleak, but things look like they’re changing. Over the past year or so since the introduction of the MMR there have been cases of mortgage applicants successfully claiming compensation after being turned down by lenders on the grounds of their age. This may discourage mortgage providers from making an applicant’s age such a crucial factor in their decision-making process.
After all, even if you do plan to retire before your mortgage term has run out, you may be confident you have the funds in place to keep paying it regardless. This could be in the form of pension pots, savings or the income of a partner who is still working.
Your age should be something you yourself consider when you’re thinking of taking out a mortgage though. Research carried out for Ocean in 2014 revealed that almost one in three respondents who had a repayment mortgage will not have completed their repayments by the time they hit 61, and nearly one in 20 will still be paying it off in their 70s.
While you might be more than happy to carry on working past the state age of retirement now, you may not feel the same way then. If possible, it’s probably best not to lock yourself into still working full-time as you never know what the future holds.
As with any important financial decision, there are always options available, so shop around. You may find the mortgage you want is out there regardless of your age.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.