Older people looking to take out a mortgage may find they have more options in future.
The UK’s building societies have announced plans to review the maximum age limit for borrowers.
Under current arrangements, lenders will only approve a mortgage up to an individual’s planned retirement age. So, for argument’s sake, if someone is 49-years-old and is expected to stop working at 67, the maximum mortgage term they will be granted is 18 years.
This can create problems for those in middle-age who may frequently find their mortgage applications turned down or restricted to a shorter term which they may struggle to afford.
Now lenders seem to have acknowledged that the old way of doing things is causing too many problems.
Life expectancies have increased and factors such as increasing property prices, student debts and people becoming parents at a later stage has meant that people are tending to buy a home later than in previous generations.
The Building Societies Association (BSA) has said that the market must reflect the realities of modern life and suggested this week that mortgage loans lasting into retirement are likely to become increasingly commonplace.
The organisation has spoken following the publication of a report – Lending into Retirement – which looks at the way lenders can provide more help to older buyers.
Paul Broadhead, the BSA’s head of policy, said: “This report identifies a number of areas that need further attention if we are going to meet the inevitable growth in demand for borrowing into, and in, retirement.
“The time is right to review lending policies … and to work closely with a range of organisations across different sectors to ensure lenders are equipped with the appropriate tools to respond to the rapidly changing demographics across the UK.”
Whilst this greater flexibility is to be welcomed it is important to ensure that there will be adequate income in retirement to meet the repayments as we do not want to have a stream of retired people being forced out of their homes when income falls at retirement. This is particularly important as the very people these changes are designed to help are the same people who are likely to have underfunded their pension contributions and do not have secure defined benefit pension schemes to rely on. In practice the changes may only be of benefit to a small number of borrowers if we are to avoid big problems in the future.
For further advice on mortgages, please contact the expert team at Birchwood today.