Forty-Somethings 'too Old To Get A Mortgage'

[Sancho Panza]

Telegraph 11/7/14

'Britain’s biggest mortgage lenders have made it even more difficult for older borrowers to secure a mortgage by requiring them to prove their retirement income from the state pension age – regardless of whether they intend to work for longer.

It comes among mounting complaints from “older” borrowers, including some only in their 40s, about their inability to secure mortgages, even when their incomes are secure and they have large deposits or equity.

Two of Britain’s biggest lenders, Halifax and Nationwide, have introduced new rules for customers who want to borrow into retirement. They now determine the point of retirement as a customer’s anticipated retirement age or their state pension age, whichever is lower.

For most people this will be the state pension age, which is currently 65 for men and around 62 for women.

And it’s not just those in their late 50s or early 60s who are struggling – borrowers in their late 40s with good incomes who intend to work into their 70s are struggling to jump through lenders’ hoops.

Nationwide has also introduced a requirement for borrowers who want their loan to run into retirement to have a private pension, such as an occupational, stakeholder or personal pension, regardless of their other savings or assets.

The lender says that when a mortgage term will extend into retirement and a borrower’s retirement age is 10 years away or more, their current income will be used to decide affordability, but they must prove they have a pension other than the state pension. It does not matter whether they are actively paying into it or not, or how big the total pot is, it said.

When the retirement age is less than 10 years away, a borrower’s affordability is assessed using their current income or their anticipated income in retirement, whichever is lower.

Alan Lakey, a financial adviser at Highclere Financial Services, said two of his clients, a husband and wife aged 52 and 46 respectively, applied to Nationwide for a £111,000 loan over 15 years on a £250,000 property. He claimed the clients met all the income and affordability requirements but were denied a loan because the husband would be 67 at the end of the term and was not paying into a pension. This was despite the fact that he planned to retire at age 70.

“There is a lot of foolish, tick-box decision-making at the moment,” Mr Lakey said. “There is no logical explanation why borrowers such as these should not be approved for a loan.”

Many borrowers have been affected by the tough new affordability criteria introduced earlier this year. Older home owners, as well as existing borrowers who are stuck on their lender’s high “standard variable rate”, have been among the hardest hit (see below).

State pension age

Ray Boulger of mortgage broker John Charcol said lenders typically stipulated a maximum age of 70 or 75 at the end of the loan, but in practice many would no longer lend beyond a borrower’s state pension age.

A borrower’s state pension age depends on when they were born. It is rising gradually in line with life expectancy and is expected to extend beyond 70 eventually. Borrowers aged between 37 and 45 have a state pension age of 67 and for those aged 46 to 60 it is 66. [Look up your new state pension age]

“People who want to borrow beyond age 66 or 67 can find it very difficult, particularly if they have an interest-only mortgage,” Mr Boulger said. “This can be true even for those who have a perfectly robust repayment plan. Lenders are assessing these borrowers on a repayment basis, so they could be turned down.”

Interest only

There were just under three million interest-only mortgages outstanding at the end of last year. Many borrowers with such loans are over the age of 50 and are increasingly unable to secure a new loan when they move to a new house, when a fixed-rate period ends or when the term has expired and they are unable to clear the remaining debt.

Many firms, such as Nationwide and Royal Bank of Scotland, have stopped issuing interest-only loans, trapping borrowers with their existing lender. In some cases, the only option is to move to a repayment basis. If an older borrower is unable to extend the term of the mortgage past their state pension age, for example, monthly repayments will increase many times over, making the debt unaffordable.

Many are being forced to sell other assets – or their homes – to pay off the debt.

Some borrowers are turning to “equity release” policies, also called lifetime mortgages, instead. Here, home owners receive either an income or cash lump sum. The interest is added to the loan each year and compounded. The debt is repaid when the house is sold, usually after death or moving into care.

Mr Boulger said this might not be the ideal solution but could be better than being forced to sell the property.

Other brokers warned that it should be used only as a last resort, because it is possible that the amount owed eventually exceeds the value of the property, leaving a borrower’s beneficiaries to foot the bill.'

[jammo]

There is a heap of extremely reckless bad advise being given by the telegraph in this article. Interest only, equity release, pretending to have a large pension pot as a form of security, leverage and of coure BTL mortgages. Does this "news" paper have no shame? Comedy gold nonetheless, notice how they imply that house price affordability was impacted by the fincacial crisis - not that it was the direct cause.

Edited July 11, 2014 by jammo

[supersonic]

Many comments are already telling the truth about the sentiment of this article, including my own.

[GinAndPlatonic]

I do not understand the criteria that states state retirement age is 65...that`s no longer the case...more like 66 for a 52 year old anyway. I guess that wouldn`t make for such good headlines though

Edited July 11, 2014 by GinAndPlatonic

[fluffy666]

'We intend to work till we are 70'

Well, there's a table here:

http://www.nationmaster.com/country-info/stats/Health/Probability-of-reaching-65/Male

This suggests that if you are a man, your chances of reaching 65 are only about 4 in 5, never mind still being in gainful employment.

[porca misèria]

I had that argument when I made an offer on a place a couple of years ago.

"I'd like my repayment vehicle to be my pension lump sum (which is sufficient to cover the capital sum even if I add nothing more to the pension pot ever again), so I'd like to coordinate that with my state pension age".

"We don't allow a mortgage to stretch beyond age 66".

[porca misèria]

'We intend to work till we are 70'

Well, there's a table here:

http://www.nationmaster.com/country-info/stats/Health/Probability-of-reaching-65/Male

This suggests that if you are a man, your chances of reaching 65 are only about 4 in 5, never mind still being in gainful employment.

That'll be from birth. Those who reach age 1 (let alone adulthood) healthy have a much better chance.

[spyguy]

That'll be from birth. Those who reach age 1 (let alone adulthood) healthy have a much better chance.

Yep, if a bloke get past 30, he's good for another 60 years.

Edited July 11, 2014 by spyguy

[PaulParanoia]

> Other brokers warned that it should be used only as a last resort, because it is possible that the amount owed eventually exceeds the value of the property, leaving a borrower’s beneficiaries to foot the bill.'

Is this right? Do they mean the the excess will have to come out of the owners estate or are they actually able to pursue the beneficiaries for cash?

[bendy]

> Other brokers warned that it should be used only as a last resort, because it is possible that the amount owed eventually exceeds the value of the property, leaving a borrower’s beneficiaries to foot the bill.'

Is this right? Do they mean the the excess will have to come out of the owners estate or are they actually able to pursue the beneficiaries for cash?

They probably read my intergenerational thread - it'll be a requirement to have kids to secure a mortgage soon!

[winkie]

'We intend to work till we are 70'

Well, there's a table here:

http://www.nationmaster.com/country-info/stats/Health/Probability-of-reaching-65/Male

This suggests that if you are a man, your chances of reaching 65 are only about 4 in 5, never mind still being in gainful employment.

Another expense to consider ontop of the mortgage payment is life cover that will repay the debt in full on first death.....will the other party afford repayments on a large sum outstanding on one wage/pension?

[Fromage Frais]

This reminds me of a commercial property I viewed.

Guy was about 80 with a shop with some flats for sale about 10-15% over priced.

"I will not take a penny less I am getting such a good return" after I offered him the market price.

I thought better to sell as your going to be dead 90% in 5 years so why worry about that?

Surly better to blow it all and have fun as he already missed the 7 years cut off to hand it over to the kids!

Still for sale and probably will be till he is dead.

Some people think they will live forever they have no concept that we as living things have a 70 odd year depreciation curve to 0 if we are lucky.

Edited July 11, 2014 by Fromage Frais

[fluffy666]

That'll be from birth. Those who reach age 1 (let alone adulthood) healthy have a much better chance.

More google research..

http://www.ssa.gov/OACT/STATS/table4c6.html

(US)

So

- You have a 99.3% chance of reaching 1

97.3% chance of reaching 30

95.8% chance of reaching 40

92.6% chance of reaching 50

85.7% chance of reaching 60

72.9% chance of reaching 70

49.4% chance of reaching 80

And behind these figures will be those who have ill-health and have to stop working.

It's certainly a gamble to plan to be working till age 70.

[StainlessSteelCat]

'We intend to work till we are 70'

Well, there's a table here:

http://www.nationmaster.com/country-info/stats/Health/Probability-of-reaching-65/Male

This suggests that if you are a man, your chances of reaching 65 are only about 4 in 5, never mind still being in gainful employment.

I think I read somewhere that quite a high proportion of blokes are effectively disabled after the age of 50 too. Also I wouldn't mind betting that the vast majority of women who are married stop working well before 60 too.

You only have to look around you. There are astonishingly few 70 year olds in most work places.

[fluffy666]

I think I read somewhere that quite a high proportion of blokes are effectively disabled after the age of 50 too. Also I wouldn't mind betting that the vast majority of women who are married stop working well before 60 too.

You only have to look around you. There are astonishingly few 70 year olds in most work places.

Indeed, as a 41 year old male I'm looking at these tables with a slight chill. At least my plans don't include earning a lot of money past 60.

[Limon]

> Other brokers warned that it should be used only as a last resort, because it is possible that the amount owed eventually exceeds the value of the property, leaving a borrower’s beneficiaries to foot the bill.'

Is this right? Do they mean the the excess will have to come out of the owners estate or are they actually able to pursue the beneficiaries for cash?

It's just about the estate. Debts can't be inherited.

[porca misèria]

It's certainly a gamble to plan to be working till age 70.

No argument there (though it's surely also an insurable risk for most of us?)

I gave up work in a conventional office myself before 40, as my back couldn't cope with the places I had to sit for long periods. Doesn't stop me working, nor (since the coming of ADSL) making more money from home than I ever did in the old-fashioned rat-race.

[R K]

Why don't they include anyone who has a contract of employment which has a notice period of less than the mortgage term as well?

Seems a little odd when most permanent contracts can be terminated with 3 or 6 months notice so nobody in employment can provide any proof of income longer than that.

[“Nasty Piece of work”]

Why don't they include anyone who has a contract of employment which has a notice period of less than the mortgage term as well?

You are right of course, and waving your junk at the CEO can end your earning ability.

The truth is the margin on a mortgage currently is huge, and any look towards prudence, however insincere, serves a purpose.

[fluffy666]

You didn't answer one of the adverts you see on roundabouts did you?

Nah, just clicked the Facebook 'Ms X made £3 gazillion working from home 1 hour a day!!!!!' link. Porca Miseria and Ms X are the only people doing it, for some reason.

[19 year mortgage 8itch]

I think I read somewhere that quite a high proportion of blokes are effectively disabled after the age of 50 too. Also I wouldn't mind betting that the vast majority of women who are married stop working well before 60 too.

You only have to look around you. There are astonishingly few 70 year olds in most work places.

You should come to my office, 60 and older is the norm.

[@contradevian]

Sounds good. Just about save up your deposit, and then you are too old for a mortgage!

I really don't know who is going is to be left to buy a house apart from cash rich boomers.

[porca misèria]

You didn't answer one of the adverts you see on roundabouts did you?

I think the roundabouts must be different where you live, 'cos that comment leaves me completely stumped.

[RentaBear]

Sounds good. Just about save up your deposit, and then you are too old for a mortgage! I really don't know who is going is to be left to buy a house apart from cash rich boomers.

Don't forget their children! I guess the reason Generation-Y seems to be so anti-inheritance tax is because they've figured out that the only way to get a house will be to be gifted one...

[iamnumerate]

I think I read somewhere that quite a high proportion of blokes are effectively disabled after the age of 50 too. Also I wouldn't mind betting that the vast majority of women who are married stop working well before 60 too.

You only have to look around you. There are astonishingly few 70 year olds in most work places.

True but aren't todays 70 year olds healthier than 70 year olds were 20 years ago? If this trend continues then there will be more people able to work until 70 in the future