I am 65 years old and have been living in a rental home for several years.
I recently received an inheritance. This could provide an £85,000 deposit against a £120,000 house.
What is the possibility of obtaining a mortgage to finance the deficit?
I am still working and earning approximately £24,000 a year.
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David Hollingworth replies: The short answer is yes, there is a possibility of obtaining a mortgage. The longer answer would be that, as is often the case, it will depend on a number of factors, individual circumstances and how the buyer would like to structure the loan.
Following the 2008 credit crisis, one area of mortgage lending that came under the microscope was offering loans that would still need to be repaid until the borrower’s retirement.
Lenders reacted quickly to this and substantially tightened their rules.
The Mortgage Market Review subsequently set out requirements for lenders to assess the affordability of a mortgage over the entire term, not just at the time it was taken out.
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Is there a maximum age to obtain a mortgage?
Although the Mortgage Market Review does not stipulate a specific age limit, many lenders set their own rules for how old a borrower can be at the end of the mortgage term.
Many imposed a maximum age of 70 or 75 at the end of the mortgage term, and those limits may still apply in some cases.
In your case, at 65 years old, that would mean that the mortgage would have to be paid off within 10 years.
The closer borrowers are to the maximum age, the more limiting it can be.
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Age limits: Many lenders have age limits at the end of the mortgage term of 70 or 75 years, but some have raised their age limits to 80 or 85 years.
Borrowing a £35,000 mortgage at a rate of 4 per cent for 10 years would cost you £354.36 a month, while the same loan for 20 years would cost you £212.09 a month.
Lenders subsequently realized that many borrowers can hold onto a mortgage for longer, and many have since become more flexible about the maximum age at the end of the term.
Some lenders have extended their maximum age to 80 or 85, while others are even more flexible and will decide on a case-by-case basis whether the loan can be approved.
Look for smaller lenders for more flexibility
In some cases, the big banks have improved their maximum age, but often it is smaller lenders that can offer more flexibility.
Some small building societies may not even have a prescribed maximum age, or may have one that offers a lot of freedom for a 65-year-old borrower.
Family Building Society, for example, may consider a maximum age of 95 at the end of the mortgage term.
Some lenders have specific agreements geared toward older borrowers. For example, Marsden Building Society would limit the maximum term of a standard mortgage to require it to be repaid before normal retirement age.
However, it also has products for borrowers over 55 years of age that could offer broader conditions, with the guideline for a person aged 65 years being up to 18 years.
There is another type of mortgage product that could eliminate any concerns about the maximum age at the end of the term.
Interest Only Superannuation is a type of mortgage that works in the same way as any standard interest only mortgage, except that it does not impose a maximum term.
Only interest is covered each month and the mortgage only becomes repayable from the borrower’s estate when the property is sold, upon death, or after moving into a long-term care facility.
These deals can be offered by many building societies, but also by more specialized lenders in this sector, such as Livemore and Hodge Bank.
Affordability
With a standard or Retirement Interest Only mortgage, an affordability assessment will be necessary as monthly payments will be required.
The lender will need to ensure that the income is adequate to cover the mortgage payments, now and in the future.
This is different to the specialist equity release market, where a lifetime mortgage would see interest accruing, rather than requiring a monthly payment.
The lender will take income and expenses into account, but it sounds like your current income level should be enough to demonstrate your affordability.
However, assuming retirement may be on the horizon, the lender will need to evaluate how income levels may be affected.
Pension income will be acceptable to demonstrate affordability, but it is worth bearing in mind that the lender will want to see some assurance of what your income will be like after retirement.
Shop around to find the right option for your age and affordability, but as long as those requirements can be met and the property meets the requirements, there could be a good chance that a mortgage could be used to ease the move into ownership.
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