Do mortgages have an age limit? I’m 65 and renting, but have just received an inheritance: DAVID HOLINGWORTH replies

I am 65 years old and have been living in a rental home for a number of years.

I recently received an inheritance. This could mean a deposit of £85,000 for a £120,000 house.

What are the chances that you will get a mortgage to finance the deficit?

I’m still working and earn around £24,000 a year.

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David Hollingworth replies: The short answer is yes, there is a chance of getting a mortgage. The longer answer would be that, as is so often the case, this will depend on a number of factors, individual circumstances and how the buyer wishes to structure the loan.

After the 2008 credit crisis, one part of mortgage lending came under scrutiny: offering loans that still had to be repaid until the borrower’s retirement date.

Lenders responded quickly to this and tightened their rules considerably.

The Mortgage Market Review later imposed requirements on lenders to assess the affordability of a mortgage over its entire term – and not just at the time it was taken out.

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Is there a maximum age for taking out a mortgage?

Although the Mortgage Market Review did not specify a specific age limit, many lenders set their own rules about how old a borrower can be at the end of the mortgage term.

Many had a maximum age of 70 or 75 at the end of the mortgage term, and those limits may still apply in some cases.

In your case, 65 years old, this means that the mortgage must be repaid in 10 years.

The closer the borrower is to the maximum age, the more limited it may be.

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Borrowing a mortgage of £35,000 at an interest rate of 4 per cent over ten years would cost you £354.36 per month, while the same loan over twenty years would cost £212.09 per month.

Lenders have subsequently realized that many borrowers can hold a mortgage for longer, and many have since become more flexible about the maximum age at end of term.

Some lenders have moved their maximum age further to 80 or 85, while others are even more flexible and will decide on a case-by-case basis whether the loan can be approved.

Look to smaller lenders for more flexibility

Large banks have increased their maximum age in some cases, but it is often the smaller lenders that can offer more flexibility.

Some small building societies may not even have a prescribed maximum age, or they may have one that allows sufficient leeway for a borrower aged 65.

For example, Family Building Society can take into account a maximum age of 95 at the end of the mortgage term.

Some lenders have specific offers aimed at older borrowers. For example, Marsden Building Society would limit the maximum term of a standard mortgage so that it would have to be repaid at normal retirement age.

However, there are also products for borrowers aged 55 and over that can offer more extensive terms and conditions, with the guideline for a 65-year-old being a maximum of 18 years.

There is another type of mortgage product that removes the concern about the maximum age at the end of the term.

A pension interest-only mortgage is a type of mortgage that works in the same way as any standard interest-only mortgage, except that there is no maximum term attached to it.

Only the interest is covered each month and the mortgage is only repaid from the borrower’s estate when the property is sold, upon death, or after a move to long-term care.

These deals can be offered by many building societies, as well as lenders more specialized in this sector, such as Livemore and Hodge Bank.

Affordability

With a standard mortgage or only Pension Interest there will be a need for an affordability assessment as monthly payments will need to be made.

The lender will have to ensure that the income is sufficient to cover the mortgage costs, now and in the future.

That’s different from the specialist equity release market, where a lifetime mortgage would see the interest rate go up, rather than requiring a monthly payment.

The lender takes income and expenses into account, but your current income level appears to be sufficient to demonstrate affordability.

However, assuming retirement is on the horizon, the lender will need to assess how income levels may be affected.

Retirement income will be acceptable to demonstrate affordability, but it’s worth remembering that the lender will want to see some guarantees about what your income in retirement will look like.

Shop around to find the right property for the age and affordability, but as long as these requirements can be met and the property is up to code, there is a good chance that a mortgage can be used to ease the transition into ownership.

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