Why you might be too old to buy a home

If you are approaching retirement, getting a mortgage can be challenging as lending criteria can be strict – but it’s not impossible. So, the good news is, you can never be too old to be a first time buyer.

However, the bad news is that borrowers will find the pool of lenders reduces as they get older – thereby restricting the options available.

Nick Mendes, of broker John Charcol, said: “You may find limited options in terms of criteria, or you may find rates are higher due to the lack of competition between lenders.”

For a traditional type of home loan, it’s likely you’ll need to be still in employment, or able to prove you have a guaranteed source of income in retirement.

So what exactly counts as a first time buyer?

Generally speaking, lenders have broadly the same definition for a first timer.

Mark Harris, from broker SPF Private Clients, said: “Typically it is someone who has not owned a property or been party to a mortgage.”

That said, he points out that there are a few outliers, such as “not had a mortgage in the past 12 or 36 months” (including Kensington, Clydesdale bank, Nationwide, and Melton building society), and a few who do not count inherited property as affecting your first-time buyer status (such as Halifax).

Mr Harris added: “But lenders don’t have anything explicit around the maximum age for a first-time buyer.”

Strict lending criteria may apply

While there is no upper limit on the age you can be when applying, each lender is likely to have their own rules. This is due to the increased risk attached to lending to older borrowers.

After all, the older you are, the greater the likelihood of you wanting to retire during the mortgage term.

Once you stop working, you will no longer have a reliable salary, and your income is likely to drop – even if you have a pension.

Mr Harris said: “There are certain caveats around maximum loans, loan-to-income caps, and repayment types available.”

Generally speaking, terms may be shorter and monthly repayments higher.

For example, a lender may stipulate that you must be under 75 or 80 when the term ends (and by which time the home loan must be repaid). This could mean that even if you did get accepted as a borrower at, say, 65, you may get a deal which only lasts for 10 or 15 years.

Mr Harris said: “The term has an impact on affordability – and borrowing potential, too. If it is based on a shorter term, it can mean borrowers have to put down a greater deposit – or that monthly payments become very expensive – or both.”

Nonetheless, there are lenders with no maximum age limit.

Mr Mendes said: “Some banks will be happy to lend to an applicant beyond 90. Though, this is for a limited pool of lenders, and some will require the applicant to have life insurance to cover a certain percentage of the debt.”

What do the lenders say?

We spoke to a host of banks and building societies. This is what they said:

Santander

A spokesman said: “We accept mortgage applications from all buyers, including first timers, up to the age of 69 for capital repayment mortgages, and up to 64 for interest-only mortgages. A capital mortgage must be paid off by a customer’s 75th birthday, while an interest-only mortgage must be paid off by a customer’s 70th birthday.

“If an applicant declares they will be retiring before their 75th birthday for a capital repayment mortgage, 70th for an interest-only mortgage, Santander will lend up to the customer’s stated retirement age instead. The minimum mortgage length is five years.”

Lloyds Banking Group (includes Halifax)

A spokesman said: “A borrower can’t have a mortgage outstanding beyond their 80th birthday for a capital and interest loan. If the loan is interest-only, the eldest applicant for a joint loan is 70. Your deposit will still be a minimum of 5pc as a first time buyer.

“It’s all going to boil down to the total amount borrowed, and the ability to meet the monthly repayments within that term. You can have a product term as short as two years.”

Coventry Building Society

A spokesman said: “We don’t have any specific age or term restrictions for first time buyers, our standard residential policy will apply. All applicants must be no more than 75 at the end of the mortgage  term. There’s no minimum term as long as the monthly payments are affordable.

“We don’t use age to determine whether or not someone is a first time buyer. We simply want to know if they have ever owned a property before.”

Nationwide

A spokesman said: “We have no specific maximum age for first-time buyers, but all residential mortgages require the loan to be repaid by age 75. Loans must have a minimum two-year term.”

Tips for those looking to buy their first home in later life

Trying to take the first step onto the property ladder when you’re older is no mean feat – so you need to tread carefully.

Jonathan Harris, from mortgage broker Forensic Property Finance, said: “Anyone buying their first home, regardless of age, should ensure they can afford it – and be sure it’s definitely what they want – as purchasing a property is a huge commitment.”

As you’re no longer renting, it’s worth having a rainy day fund to dip into. Mr Harris said: “You won’t have a landlord to replace a faulty boiler or fix the roof.”

You also need to ensure you have enough income to support your lifestyle. Mr Harris added: “Check there are no surprises or onerous commitments, such as ground rent or service charges. If there are, make sure you can afford them.”

How to improve your chances

Taking out a mortgage as an older person can be tricky, but there are things you can do to help your case.

• Get your ducks in a row – spend time getting your paperwork in order. Gather together proof of your pension and other sources of income to demonstrate you can afford the monthly repayments.
• Check your credit score – get a copy of your credit report and see if there are things you can do to boost your rating. This will give you access to a wider range of products and rates. Simple ways to increase your score include getting registered on the electoral roll, making all payments on time, ditching credit cards you no longer use, and cutting ties with ex partners to ensure their credit rating doesn’t harm yours.

Are there other options?

Some lenders have other options for later-in-life borrowers.

For example, there are “retirement interest-only mortgages” which allow you to borrow a tax-free cash lump sum with the requirement to pay off only the interest each month. There is usually a minimum age requirement of 50.

Mr Mendes said: “These deals have no end date. They are only redeemable [with the amount borrowed due to be paid back] when the last surviving homeowner sells the home, moves into a care home, or dies.”

Equity release is another alternative available to older borrowers, but wouldn’t be an option for a first time buyer. This is a form of mortgaging or remortgaging in which homeowners borrow against their properties by taking out a tax-free cash lump sum.

Take advice

Given the more complex nature of borrowing in later life, it is more important than ever to seek advice. An independent broker can help talk you through all the possible solutions.