According to a survey of Mortgage Brokers by the Nottingham Building Society, almost half of respondents said that they had experienced a rise in declined mortgage applications for those in their 40’s. When they asked customers aged between 45 – 54 who had been declined, they too said it was down to their age. Here we will attempt to explain why people are experiencing this problem and what steps can be made to get a mortgage over 40 years old.
If you are over 40 and struggling to get a mortgage, then you may need help from a Specialist Mortgage Advisor in Coventry.
To understand why this is happening, we need to turn back the clock back to before the days of computerised credit scoring and increased regulation.
Back then, if you went into your local Building Society for a mortgage, you’d be interviewed by the branch manager or a Mortgage Advisor in Coventry who would assess your application and decide whether it was approved. If your application was approved, you would then be advised as to how much you would be allowed to borrow. This would have been expressed as a multiple of your salary.
What this income multiple method didn’t consider was the age of the applicant. Therefore, it didn’t matter if you were 30 or 50 years old, you could be allowed to borrow the same amount of money. On the face of this, it seems fair. But if those 2 applicants were both due to retire at the age of 65, then applicant one would be granted a mortgage term of up to 35 years whereas the other would only be granted 15 years, making their monthly payments much higher.
Here, we have illustrated what difference this example makes to the two applicants:
In this example, we have two identical earners who have been granted the same sized mortgage. However, applicant two’s monthly payment is much higher.
If mortgage rates shot up, then the risk of arrears and/or repossession occurring is potentially greater for the second applicant. As a result of these issues, modern mortgage calculators now consider the maximum term of the mortgage which is ultimately your age.
The BBC contacted us for a comment on the Nottingham Building Society’s study and we advised them that it’s not that older customers are being turned down as such, but that they are being told that they can borrow less than what they were expecting.
Of course, the irony of this situation is that the lenders are not taking into consideration the changes made by the government which will see us working until a later age before we qualify for our state pension.
Firstly, there are some occupations which rely heavily on manual work that you might not be able to carry on into your seventies. Therefore, lenders will only consider granting mortgages past the normal retirement age if you can demonstrate affordability.
This would normally be shown by having your pension provider create a letter which includes a projection of your future income. However, most people see a reduction in income at retirement, so lenders will want you to prove you can still afford repayments. In practice, this hardly ever works unless you only require a small mortgage. If that’s the case, you probably wouldn’t need a mortgage that goes past retirement anyway.
However, the default retirement age was scrapped in 2011 which means your employer can no longer force you to retire. Therefore, it has become more common for some lenders to let you self-declare the age that you intend to retire. This does come with a plausibility check though. However, last year we did come across a case where one of the major lenders had agreed to a 9-year mortgage for a 66-year-old accountant. But this was probably due to it being a non-labour-intensive job.
Lenders are also closely monitored by the regulator in terms of repossessions and arrears cases and it looks very bad on them when these occur. In addition, it’s never going to look good for them when they kick a pensioner out of their home because they couldn’t afford the payments!
Hopefully, this goes some way to describing why getting a mortgage over 40 can be difficult.