Should all mortgage age limits be scrapped?
Nationwide and Halifax this week increased the options for middle-aged borrowers
Two mortgage lenders have announced that they are increasing their maximum lending age in order to help older homeowners.
Both Halifax and Nationwide have increased their maximum lending age, with Halifax prepared to lend mortgages to people aged up to 80 and Nationwide 85. This is great news for many older borrowers who struggled with affordability criteria because they had to take a short lending term due to their age.
"We are taking a series of steps to meet a growing demand from customers to be able to borrow in later life," says Henry Jordan, Nationwide’s head of mortgages. "These customers are often asset rich, with significant equity in their home, and they wish to have the flexibility to borrow against it."
Decades of booming house prices mean the age of the average first-time buyer has shot up to 35, according to research by Post Office Mortgages. When they do eventually clamber onto the housing ladder many more buyers are opting for 35-year mortgage terms rather than the traditional 25 because it reduces the monthly cost helping them pass the affordability tests.
This all means that people are getting older and older before they clear their mortgage.
The maximum lending age on a mortgage is the oldest you can be when the mortgage would be cleared. By increasing those maximum ages Halifax and Nationwide are giving older borrowers more options.
There are another group of people who will benefit from the rise in age limits: children buying with their parents. Soaring house prices means many children are buying their first home with parental help. One way this is done is through a joint mortgage so that the parent’s income is taken into account on affordability.
Unfortunately that help can be a double-edged sword as the parent’s age can curtail the mortgage term. Increasing maximum lending ages will therefore help here, too.
But barriers still remain. For example, someone as young as 46-year-old still wouldn’t be able to take out a 35-year term mortgage with the Halifax.
"Although the borrower may sell the property long before the 35-year term, the lower monthly costs could make the difference between qualifying for the mortgage in the first place and being declined," says Matt Sanders, head of money at Gocompare.com.
"This is a positive move but mainstream lenders need to go further. If a borrower can show that they can afford mortgage repayments, their age should be immaterial."
While the higher age limits are a great way of helping middle-aged borrowers pass affordability criteria, it does also potentially worsen the worrying situation of people still paying off mortgages when they have retired. Many people have very small pension savings and continuing to repay a mortgage after retirement could prove impossible.
Halifax has addressed this saying that borrowers who’s term would stretch beyond their 70th birthday will have to prove they have sufficient pensions and investments to produce an income that would cover the mortgage.