Mortgage affordability regulations, newly specified in Aprilís Mortgage Market Review, mean lenders have re-vamped their requirements for loan approvals. Banks & building societies are now considering a borrowerís post-retirement income before sanctioning a mortgage term which ends after the latterís retirement. Even those who are planted firmly in the black, with sizeable assets and a good income must meet these requirements.
Figures from one of the UKís leading independent mortgage brokers, the Mortgage Advice Bureau, display lenders' growing penchant for implementing maximum age limits for mortgages. Averaging at 72, this maximum cut-off age causes borrowers to be left with a small amount of time to repay their mortgage. The pressure resulting from this short time-frame is not conducive to the lifestyle a citizen of such an age ought to be leading. Moreover, the resulting debt would be problematic given the lack of livelihood and unpredictable health of an elderly person.
"The new affordability rules are creating a collision between borrowers' desire to stretch their repayment terms beyond their normal retirement age, and the requirement for lenders to carry out income-based checks to ensure that consumers can afford to repay their loans," said Brian Murphy, Head of Lending at the Mortgage Advice Bureau (MAB).
"Borrowers often seek longer repayment terms to reduce their monthly repayments and keep them as a manageable portion of their overall expenditure. However, if that term crosses over from their working life into retirement, there is still a regulatory imperative for lenders to ensure that affordability will not be compromised when regular employment income comes to an end.
"Many lenders also have a maximum cut-off age for borrowers at the end of their mortgage term, which averaged 72 across the market in June. The result is that some borrowers are left with a limited window in which to repay their mortgage, especially as housing pressures and delayed home-ownership can mean people taking on a loan later in life than once was the norm."
As displayed by figures released by the MAB, 1 in 5 buyer searches on-line insisted on a mortgage term of 30 years or more. This protracted period of repayment can be beneficial to an extent.
On the one hand, dividing the sizeable cost of a mortgage over a lengthier period of time will assure lenders that customers are capable of affording monthly repayments, in accordance with their incomes. This reduced pressure on borrowers can lead to monthly repayments being decreased by over £100, depending on the interest rate, compared with the archetypal 25 year term.
However, it also pushes up the total cost of the loan in its entirety, potentially adding tens of thousands to final amount.
"Lenders are increasingly concerned as to how mortgages are going to be repaid," said Adrian Anderson, director of mortgage broker Anderson Harris, "and have particular worries about those borrowers taking on interest-only mortgages who don't have any plans in place to pay off the loan. It is harder for older applicants to get a mortgage with many lenders insisting the loan is paid off by the age of 65 or 70, depending on their criteria.
"Increasingly since Mortgage Market Review, many lenders are using 65 as the applicant's retirement age which makes little sense when the state retirement age is rising and most people will work on beyond this age.
"Given that the average age of a first-time buyer is their mid-30's, by the time many have saved up for a deposit there is not enough time to pay the mortgage back by the time they reach retirement age. Stretching the term to reduce the payments and help with affordability is not an option either. Some lenders are more flexible than others with regard to when a mortgage is paid off so if you are in an occupation where you are intending to work until you are 70, some lenders will consider this."
Recognising the wide variety of needs borrowers of all ages harbour remains one of the biggest challenges facing the mortgage market. The ageing population has to be faced, their worth to society assessed and their ailments accommodated ñ there is work to be done, quite literally.