Lending into retirement - Frequently Asked Mortgage Questions

Hi guys

I'm Dan, this is Kye, coming to you again from Crescent Mortgages with one of our FAMQ's - frequently asked mortgage questions and today we're covering maximum age.

Can you get a residential mortgage when you're a bit older?

Before we jump into it just to let you know we are Cemap qualified mortgage advisors practicing in the industry for a combined 20 years.

Let's jump into it!

Okay, so maximum age.

I guess the first thing we want to cover is that lenders will generally have a maximum. an absolute ceiling age that you can be at the end of the term regardless of your the income that you're using on the application, but that's not really what we're going to focus on today.

Today we're going to focus on something that is is a much more common question that we come across which is what's the maximum age that you can go up to at the end of the term whilst using your employed or self-employed income, because obviously most people want to be able to borrow as much as possible and you generally need to use all incomes on the application to make that possible.

I guess we should mention as well, as I just touched on, that the maximum age is assessed at the end of the term, not your age at the start of the application.

So if you're 50 now, you're 60 now, that doesn't really matter you can get a mortgage the issue becomes more apparent when you're trying to borrow you know the loan over 10 years, 15 years, 20 years and then the end of the term you're going to be beyond that maximum age.

Exactly I think then the big points here or the the main topic, as Dan mentioned is if I'm working how much can we use our income?

So generally speaking, as a rule of thumb, lenders will say we can't use your income beyond the retirement age that you state. There's a few points in that sentence probably for us to pick apart, but that's the line I supposed to start with. So if you're saying I'm going to retire at 65 and you want to a mortgage until 70, generally speaking lenders won't use the income from your job or your business, or whatever it is that you do.

That's probably where to start isn't it?

Yeah I think just to elaborate on that I guess you...

(whispers) Keep rolling...

Oh my goodness!

Yeah, so I guess just to give an example of that, let's say you're 50 and you have stated an anticipated retirement age of 65 and you want your mortgage to go for 20 years then the lender is not going to use your income or assess your income on the application because for the final four or five years of that mortgage you're not going to be receiving the income that they would assess, so even though you'll receive an income for the majority of that mortgage, even if the mortgage takes you a day, a month, a year past your stated retirement age they're probably not going to use your income at all, so you have quite a common issue where let's say you've got a married couple husband's 55 wife is 50 or the other way around regardless, you may find that if you're trying to use both of those incomes on the application to borrow as much as you can but the mortgage goes for 19 years and the husband has stated an application a retirement age of 65, then unfortunately even though you might be able to use the wife's income because the mortgage doesn't take her beyond her retirement age, you actually may not be able to do it for the husband, which obviously using one income is going to significantly reduce the amount that you can borrow.

Yeah and I think the slightly easier scenario, if you're already retired so if you are 55 you've just started drawing down your private pension, you were lucky enough to retire early, but for some reason wanted a 20-year mortgage. Well as long as the lender is okay with lending up to that age, because the income is guaranteed then it's not a problem, so if the income is going to be guaranteed, it's a lifetime income - pension's the easiest one I can think of, then generally you're only stipulated then by the the maximum age that we discussed earlier

But by its very nature employed income, self-employed income, should stop when you retire which is why they're really focused on the retirement age.

I guess on to the retirement age.

So you can declare whatever retirement age you think is realistic, so generally your broker or the bank will say when do you expect to retire and you can give whatever you believe if you think it's going to be 60 you can put down 60. if you think it's going to be 90 you can put down 90. You can put down whatever you want, however we should mention that the lenders generally will look at kind of the feasibility so if you're in a particularly manual job, let's say you know perhaps a construction worker and you say that you're going to retire at the age of 75, then there's a good chance that the lender either may not accept that or they may come back with some questions to ask,

Well actually you know how is this going to be feasible?

Can you give us a bit more information?

Maybe you'd be able to give them a relatively good explanation for them to allow the mortgage up to that age.
Likewise if you run your own business and you kind of have people that work for you and you're just in the background then retiring at 75 is quite feasible, so yeah those are probably the two extremes of that example and as long as it's not too manual a lot of lenders would allow you to state a retirement age that is realistic.

It's all feasibility.

The final point on that, is that even if you expect to be drawing your state pension let's say at the age of 66 that doesn't mean you have to put 66 down as your retirement age because there's a lot of people that will draw their pension but can happily carry on working.

Just because you're receiving your state pension doesn't mean you have to stop working, so in reality even if you do receive your state pension at 65/66/67 you can still stay at a retirement age of 70 if you genuinely believe that you're you're going to continue working to that age.

Now bear in mind as well, that you know if you do put down a retirement age you know 70/68, whatever it is, no one's going to hold you to that specifically, no one's going to expect you to know exactly when you're going to retire but you just need to put something that you think is realistic and roughly fits with your plans.

We touch on it earlier, there are stories where possibly you can.

Obviously we told you you can't go past your retirement age. A couple of exceptions, as a rule of thumb that's fair to say, but if you need to there are versions that can.

So easiest example if you say yes I'm going to retire, likely to 65 years old and you are 50 but you do want that 19/20 year mortgage you're going beyond the age of your retirement. Some lenders will say if you're contributing to a pension and can evidence that so either a contribution on your pay slip to show you're paying into one or if you're self-employed maybe some sort of letter or something confirming that you're contributing at that point, some lenders can then consider popping your term up to the age past retirement on the provider that they know you will still have an income and they won't assess that income. They don't need to know how much the pension is, they're comfortable you know you can still keep borrowing that much money and you will pay that mortgage because you're saying you will.

A couple of points on that, just finally.

Number one, there's only a very small handful of lenders that will do that, so you are quite limited, albeit you know they are good lenders but you're limited with options there.

The really important one is just because you can get a mortgage beyond your beyond your retirement age doesn't mean you should because you need to actually genuinely understand how you are going to be able to afford your mortgage once you've retired.

If you retire at the age of 70 and your mortgage takes you to 75, obviously your income will cease.

How are you going to be able to afford that mortgage?

So that's a conversation you have with your broker and you do need to have a plan in place.

The final point for me which possibly is one of the most important ones which we've not touched on so far is that lenders will go to either your income up to either your retirement age or usually a maximum age that they have within their criteria which is most commonly 70.

So what I mean by that is if you state that you could retire, you could work until 70, let's say you're 50 and you say that you could work.

Sorry until 75

But the lender has a maximum age of 70 where they can use your income then they're going to cap it at 70 not the 75 that you've declared so you would only be able to get the 19/20 year term rather than the 24/25 year term, which takes you up until your retirement. Some some may go to 75 one or two go to 80, but 70 is probably the common one, so it's often quite difficult to take a mortgage and use your income if your mortgage is going beyond the age of 70 at the end of the term.

I think as you can see it's it's not too complicated but it does overlap a little bit and can get a little bit confusing at times with how different lenders assess it, so as probably all of our videos finish you probably should get in touch if you have a question and take some advice on if your scenario works or not, but hopefully that's at least giving you an insight to maybe the logic and what some of those canm or can't do.

That covers everything from me, as I said any questions get in touch, obviously if you can like the video, subscribe to the channel that'd be great

You know where we are and hopefully we'll see you next time.

Thanks a lot.

Cheers