Article by Amy Flower - 25th September 2012

Mortgages For Pensioners – The Options

Obtaining a mortgage or re-mortgage is becoming increasingly difficult, if not nearly impossible for people approaching retirement age. Due to the economic downturn, banks and mortgage lenders are becoming less willing to accept an application from a retirement aged customer.

Credit assessors are becoming more aware of the risk factor of accepting a mortgage application from older applicants as their earning potential can decrease considerably if they take retirement during the term of the mortgage.

Also, in the event of default, the prospect of repossessing a pensioner’s home is not one that the banks would like to bear. It is easier simply to decline an application than to take on the risk of not being able to resort to its security should the worst happen.

Many over 60s are finding that they can only get 5-7 year mortgages with the aim to have the mortgage repaid before the normal retirement age, which then reduces the risks for mortgage lenders considerably.

Understandably, pension aged applicants are being asked to provide information on their pension plans and endowment policies when they are making their applications for the providers to assess affordability and to ensure that a living wage remains after the mortgage commitment, which for pensioners is often a much larger cut of their income than for others.

A good proportion of established mortgages have been lent on an interest only basis, where the prospects for repaying the capital sum in full having diminished. Those in this difficult position are now looking to re-mortgage, as the only other option is to sell the property and move into rented accommodation, or downsize if a reasonable level of equity is still held.

Critics have described the current situation as a ticking time bomb.

The Financial Services Authority (FSA) has been criticised for exacerbating the situation by giving the impression that lending to over 60s is a bad idea. In reality, more and more people are getting onto the housing ladder later on in life and are likely to seek a mortgage term beyond the normal retirement age, anticipating that this will continue to stretch further and further out. The demand for mortgages from those over 60 is therefore likely to be a growing one.

The average age of first time buyers in now around 35 - 38 (depending on what research is believed) and may well reach into the 40s by 2025. Unless mortgage terms are reduced from the standard 20-25 years, it is inevitable that going forward, mortgage portfolios will be more heavily populated with pensioner borrowers.

It has been suggested that lenders should be looking at the credit risk of the customer and their ability to repay the money borrowed rather than their date of birth. The ageing population are at risk of being discriminated against if banks remain unwilling to become more flexible, but on the other hand, no-one wants to evict a pensioner from their home.

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