Over 40s taking out long-term mortgages

There seems to be a trend more recently where customers are extending terms to the maximum allowable age, with some lenders allowing customers to go to the age of 75 with the use of current income. When the mortgage term goes beyond customers age of 70, most lenders tend to factor in estimated retirement income, which is then used to determine affordability. The reason for taking the maximum term is down to a few reasons. One of them being a steep increase in house prices, where customers can usually borrow more on the maximum term allowed. The other reasons, which I believe are the main reasons are increasing interest rates and cost of living. With the energy prices at the beginning of the year continuing to rise (now at a steady pace due to the cap on energy), most customers will still pay more than they’ve been used, so they want to ensure they can afford mortgage payments. This is also effected by the cost of living increasing as we’re experiencing everything else costing more than usual. People want to have comfort each month with disposable income, so they want to reduce the cost of outgoings as much as they can. It's been mentioned in the industry for some time, for lenders to increase the max age of lending on a residential basis using current income. The life expectancy for people living in the UK is as high as it’s been, but isn’t reflected in normal life scenarios. Although state retirement age is before the age of 70, we’re seeing a lot more people continuing to work in their 70’s, but unable to have a mortgage with most main lenders during this time. We have to remember, most mortgages are done through the intermediary channels, so customers will continue to get advice when they remortgage allowing the brokers to assess new circumstances to ensure the mortgages are still affordable once they near retirement age. Some things do need to change in the industry, and I believe they will, but until then, we will see more people taking the maximum mortgage terms allowed to reduce outgoings during the current climate, where many things are uncertain.

Naturally, more often than not people want a low monthly payment and can often see extending the term as a way of reaching this. With the rising costs of mortgages, it's likely going to heighten this becoming a more regular scenario. Retirement plans could quickly become ruined for many customers unless they plan to sell up and downsize or may face having to consider equity release to get by. Lenders will typically take one of two stances of lending past the typical retirement age. One scenario would be working off a plausibility basis. If a person works in a desk-based office job it's unlikely to present an issue of them working to the age of 75. However, if they are a builder they are likely to question the plausibility of working in that kind of role until then. Other lenders may take the view that if they can evidence sight that the customer is paying into a pension they are happy to lend past state retirement.

A lot of people are now rethinking their mortgage term to keep mortgage payments at an affordable level as they remortgage off deals of 2% or 3% and into a world of 5% mortgages; but this is not new with many people purchasing property over the past few years also looking at longer terms as a way of affording the ever-increasing cost of property. In theory the idea of an extended term is not a huge issue, as long as you are comfortable working until the proposed end date (or have a fantastic pension plan). Many lenders are happy to consider people extending their working lives to age 70 without any real issue, a few will go beyond that to 75 or even 80, but those lenders will want to know the sort of work you do to ensure that is reasonable - a barrister working to 75 would be considered a lot more likely than a roofer, for example.

The vast majority of lenders only allow the mortgage term to extend to the oldest applicant's 70th birthday using employment or self-employment income. Beyond 70 years of age, retirement income needs to be sufficient to support the mortgage payments. With mortgage rates soaring and life expectancy increasing, it's likely that more lenders will allow mortgage terms to extend to 75 years based on employment income alone. But only where the type of work involved is viable at that age. A solicitor might be accepted, but a construction worker probably not.