How to get a mortgage if you’re over 40
A recent survey carried out by the Mortgage Brokers in Nottingham Building Society had surfaced results showing that a rise has appeared when it comes to Mortgage applications being turned down in relation to clients who are over 40.
A survey conducted by Nottingham Building Society had revealed that they had experienced a rise in unsuccessful Mortgage applications from clients above the age of 40. When asking customers whose applications were involved, customers had replied and said the factor that they think it comes down to is age.
To understand why this is we would need to look back at the time where credit scoring was not computerised and regulation wasn’t as tight as it is in contemporary settings. If you were to apply for a Mortgage with your local branch back in the day then the process would basically include an interview with an allocated Branch Manager/Mortgage Advisor. Following this, the interviewer would then go onto individually assess your personal details leading upto the decision as to whether or not you’re successful.
If you do get approved then you’ll be told how much you’re eligible, this will be a multiple of your gross salary. For example, if you earn around £20,000 pa and the Lenders income multiple was 3.5x then you would be allowed a mortgage of £70,000.
With this calculation, the only thing it doesn’t factor in is age which means age didn’t matter therefore there was no set restrictions on how much you can borrow unlike nowadays. It may appear to be fair but it changes when you look at the bigger picture.
If we look over the individual applications, we can see how this can affect the applicants. Theoretically, if both applicants are due to retire at 65 and applicant one was granted a mortgage of only 15 years the mortgage payments would be higher than applicant two who was granted a mortgage upto 35 years.
To see how much of a difference this really is, let’s take a look at the above £70,000 mortgage and use that as an example and apply a 5% interest rate:
-Applicant one mortgage payments on £70,000 over 15 years: £395pm approx.
-Applicant two mortgage payments on £70,000 over 35 years: £252pm approx.
It is apparent that one applicant’s payments are higher, despite the two applicants earning identical amounts. If interest rates were to increase then the chance of underlying risks such as an arrears situation suddenly appearing would amount to be greater for applicant two. This would offer us an insight as to why mortgage calculators now review the maximum term of the mortgage in addition to your income and expenditure.
When the BBC got into contact with our Mortgage Advisors about the study, they stated how it wasn’t so much that the older customers themselves were being turned down, it’s about they were expecting a different outcome in terms of the amount they’re able to borrow. However, the irony included within this is that the Government keeps on telling us that retirement is coming at a later age before we qualify for a state pension but the Banks don’t seem to take this into account for numerous reasons.
Firstly, occupations including work involving manual work means it would not be viable to work after a certain age. In addition to this, Regulators closely monitor Lenders in terms of repossessions and arrears cases as it looks bad for all parties involved when these occur. The process of taking possession of a property is very costly and attracts unwanted attention by which Lenders try to avoid. It is because of reasons like this that they don’t want to offer a mortgage to individuals of a more mature age and then be seen kicking them out in the foreseeable future because payments were unable to be paid.
Though it isn’t all bad if you’re still after a mortgage. Lenders may consider granting mortgages past the standardised retirement age with proof of affordability which would be a letter from a pension provider showing potential future incomes. The problem in relation to this is that the majority of the general public will be exposed to a reduction in income at retirement. This will mean evidence will be vital to prove you can still keep up with your payments. Although this rarely works unless you’re after a very small mortgage which probably won’t go past your retirement age anyway.
The default retirement age was discarded in 2011 this has made it so as your employer can no longer make you retire thus Lenders will use the State Retirement age as a guideline as to which you should have your mortgage paid off by. Barring that, it has recently become more normal for Lenders to let you self-declare when you want to retire but this will also involve a plausibility check.
If you are thinking of going down this route then you must be prepared to answer questions on how you will be affording your Mortgage – Consumer protections and regulations are in place to protect consumers and encourage prudent lending. So, you will need to provide proof and demonstrate how you will upkeep payments.