40 - You may be too old for a mortgage

Posted by Neil Greenhill in Mortgages on 26 February 2016 - Neil is a Senior Credit Analyst at checkmyfile

Experts are warning that borrowers as young as 40 are struggling to obtain a mortgage due to their age.

Lenders have traditionally seen older borrowers as risky, due to impending retirement. However, with house prices increasing those in their early 40’s are looking to extend their mortgage period beyond the traditional 25 years. The problem being many are finding they are considered too old by mortgage providers as they will hit retirement before the end of their mortgage term.

A recent survey of customers showed 17% had been declined due to their age, rising to 21% of those in the 45-54 age bracket. A quarter of those turned down said it was because they were too old for a mortgage with a long term, while the rest said that they or their partner was considered too old.

Further evidence comes from a Nottingham Building Society study that shows 37% of brokers have seen an increase in customers being declined when looking to mortgage or re-mortgage properties.

Another group of older borrowers hard hit are those with interest-only mortgages. It is estimated 425,000 interest-only mortgages are due to mature in the next 5 years; many will belong to those in their 50s and 60s. Customers on these mortgages repay the capital at the end of their deal. Many may find they won’t have sufficient capital and when they go to extend their mortgage term they may find they are rejected on the basis of their age.

In a recent case Co-operative bank was forced to pay £2,000 compensation to a 69 year old borrower who had been told he couldn’t extend his mortgage by 5 years. The ruling was made by the Financial Ombudsman which has forced the Co-operative ban to change its policy.

The Financial Conduct Authority is now launching a review into financial Age discrimination – a large part of this will focus on the problem of older borrowers being rejected for a mortgage. The FCA has voiced concerns that older borrowers may be falling victim to a more risk averse mortgage industry.

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