At the beginning of the month Halifax
, the UK’s largest mortgage lender, raised its age limit to 80 and now Nationwide
is to increase its maximum age limit from 75 to 85, in an effort to reflect the UK’s ageing population and changing employment habits. Until now, older borrowers have found it hard to secure mortgages because of the obvious age-related risks.
However, with people living and working longer (many are now remaining in employment well past their 70th birthday), the same rules on mortgage lending no longer apply. Under its new rules, Nationwide will grant mortgages of up to £150,000 to older borrowers – but only if they can show they have enough of a pension or income to afford the repayments.
Eighty is now the latest age at which Nationwide will grant a mortgage; this would run for five years and requires borrowers to prove that the loan would be no more than 60% of the value of their home.
With nearly 12 million people aged over 65 in the UK, lenders have come under increasing pressure to cater to this demographic. Employees no longer have to retire at 65 and the state pension age is set to increase to 67 years old (for both men and women) by 2028. Many people are now putting off retirement and working for longer, and many mortgage brokers believe it is only right that this group should be targeted rather than excluded when it comes to mortgages.
The announcements by Nationwide and Halifax are seen as a positive step, with the possibility that other major lenders will review their lending rules and change their approach.
Many older borrowers are actually seen as a low risk from a financial point of view, because they have excellent credit scores and a good record of keeping up with repayments, so the question has been why aren’t lenders willing to lend to them?
The obvious – and most morbid – explanation is that older people are more likely to get ill and to die, but with the UK population living for longer than ever the risks of raising upper age limits for mortgage borrowing are no longer as high.
There are those who take a more doom and gloom approach – suggesting that these measures will simply mean that older people will be in debt for longer. The reality is that older people need somewhere to live too, and is it right that this demographic isn’t offered the same terms as younger borrowers simply because of their age?
Often, later in life, people will seek to downsize from a larger home to a smaller one. Changing needs may herald a move from a detached home to a bungalow or a terraced property to a flat. The homes they sell would help to free up more stock, which could help those struggling to get onto the property ladder for the first time. Downsizing is an increasingly key part of the sales market and making it easier for people to borrow could make such a move a more attractive proposition.
As it currently stands, most major banks make it extremely difficult for older borrowers. Older borrowers either give up or head to smaller building societies, where they are charged more expensive rates, by extending the age limit affordability is much improved. At the moment, the following scenario faces older borrowers: a £100,000 mortgage is granted to someone age 65, to be repaid age 75, costing the borrower £966 a month at an interest rate of 3%.
Now consider what happens when the age limit is upped to 85 – the monthly repayments drop to £555 per month. There are fears, though, that the extension of age limits will increase the influence of the “Bank of Nan and Grandad”, with money being passed on by grandparents to their grandchildren to help them buy a property.
Will these later-life mortgages merely be used to prop up the younger generation?
The loosening of age restrictions by Nationwide and Halifax, and the recent announcement of Barclays 100% mortgage
(which relies on a “helper” to place a 10% deposit in a savings account for three years), has led to worries about a divide between those whose parents and grandparents can afford to help them onto the property ladder and those who are left to rent for the rest of their lives.
All in all, though, extending the age limit on mortgage borrowing has many more upsides than downsides and it seems inevitable that other mortgage lenders will follow Nationwide and Halifax’s example in the near future.