House buyers over the age of 40 are apparently being refused mortgages by some lenders, according to a new report.
Even some in their late 30s could be hit by the lenders tightening up their affordability criteria, as some have even introduced maximum age limits for those wanting to borrow.
The news comes after research* conducted for us earlier this year found that of those with a repayment mortgage, almost one in three won’t have finished repaying it by the time they are 61. Almost one in 20 even said that they wouldn’t have repaid their entire mortgage by the time they were 70.
Hit by the MMR
Among the reasons that lenders seem to be becoming stricter about granting mortgages to those over 40 is the introduction of the Mortgage Market Review (MMR) back in April. This set out a code that lenders had to use to assess potential buyers’ “affordability” to ensure that they would be able to repay the mortgage. If lenders think that a buyer won’t be able to keep up the repayments, they may turn them down. As 25-year mortgages have become fairly common, some lenders may not wish to grant a mortgage to someone if they think that this time period could overlap into retirement.
For example, if you take out a 25-year mortgage at the age of 45 while you’re still working, you would be 70 by the time you paid it off, an age when most people are retired. Some lenders may not be sure that you will still be able to pay once you are out of work and living on your pension.
This means that some potential home buyers or existing homeowners thinking of moving or re-mortgaging could be refused a mortgage if the lender thinks that they won’t be able to make the repayments into their retirement.
If house buyers over 40 do take out a mortgage, they may have to take it out over a shorter repayment period, such as around 15 years. This would mean that they would have to make higher monthly repayments, and could mean that they may not be able to save up as much as they had planned for their retirement.
Mortgages in middle age
However, if you’re looking to take out a mortgage over the age of 40, you don’t need to give up hope entirely. If you think you’ll be able to afford larger repayments, you may be able to take out a mortgage over a shorter timeframe, so you’ll have paid it all back before you retire.
You could also look around to see if a different lender will accept you. All mortgage lenders have different criteria when they’re deciding who can borrow, so not all may reject you if you’re over 40. The best way to show these lenders that you’ll be able to repay your mortgage is to have a good credit rating. Proving to potential lenders that you are able to keep on top of your finances means that they are more likely to grant you a mortgage. You could use a broker such as Ocean who can look across a range of mortgage deals to advise you where you may be accepted. A report yesterday found that 60% of mortgages are now brokered, and it could give you a better chance of finding a lender who might accept you.
If you have a good credit score but your age is holding you back from getting a mortgage, you may want to wait a while. The Intermediary Mortgage Lenders Association (IMLA) wants the FCA to discuss the issue of people over 40 not being able to get a mortgage in its review of the MMR in early 2015. It could be that the FCA will decide that it needs to enable mortgage lenders to adopt a more flexible approach – although this is not certain.
The most common type of mortgage is a capital repayment mortgage. This is where you repay what you owe alongside interest in monthly instalments, based on your income and outgoings.
*OnePoll questioned a nationally representative sample of 1,822 adults aged 18 and over between 25th February and 7th March 2014.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.