Older people in the US are increasingly taking more mortgage debt into retirement than ever before, but applying for a new mortgage can prove troublesome for seniors. This is also the case in the United Kingdom, where new rules that were introduced earlier in the year have meant a greater struggle to gain finance for home buying in later life.
For homeowners in America aged 65 and over, the percentage carrying mortgage debt increased by almost 10% to 30% from 2001 to 2011. Among those aged 75 and older, the rate more than doubled during the same period, from 8.4% to more than 21%.
Types Of Mortgages Available In America
There are many different types of housing purchase loans available to older people in America, but the problem comes from proving that you can pay, even if you are still working later in life. There is a lot of advice and services available to senior borrowers, and many options are available.
Range Of Mortgages In The US
There are a range of mortgages available to US senior citizens, from the standard mortgage, which depends on your income and credit rating, to a second mortgage, but these are riskier for lenders. Other options include a refinanced mortgage and a reverse mortgage.
Reverse Mortgages
With a reverse mortgage, which is available to those aged 62 and over, instead of getting a lump sum that is used to pay for a home, a lender gives the borrower monthly payments for your existing home for a fixed amount of time. At the end of that period, the bank owns the home, and the property is then either sold by the lender or refinanced by a family member.
However, these types of mortgages have a bad reputation as a last resort for seniors who can’t keep up with medical bills or the upkeep of their home, but used properly by someone who totally understands what they are getting in to, it can be a useful option. Some analysts have warned that with the growing deficit in America, this type of product may not continue to be available for too much longer.
Getting a Mortgage In The UK
Tough new restrictions introduced by the Financial Conduct Authority in the UK in the spring have forced lenders to prove their customers will be able to afford to pay off loans. The rules are said to ensure both responsible lending by banks and building societies and sensible borrowing by loan applicants, but the so-called mortgage market review has attracted widespread criticism.
Borrowers’ expenditure has been under the microscope like never before, resulting in some not getting the mortgage they applied for. Even people in their 40s have been told they cannot have loans that end after their expected retirement. Due to a fear of breaking the rules, banks are turning down applicants who would more than likely be making repayments in retirement when incomes are lower.
A report released recently by a body representing 24 big lenders in Britain – including Santander, Nationwide, Lloyds and Barclays – warns that even borrowers in their 40s are falling victim to the new regime, and even those in their late 30s seeking increasingly popular longer-term deals risk being turned down. The rules are also a problem for those forced by soaring house prices to take on longer-term loans that have lower monthly repayments.
Uncertainty Over Pensions
Uncertainty over pensions is also making it difficult for lenders to asses mortgage affordability in later life, and this could become increasingly so when new pension freedoms take effect in 2015, with fears that regulation could bring about the extinction of mortgage terms that stretch into retirement.
The new pension freedoms are said to make it difficult for lenders to know if someone will have a steady income in retirement or if they will have blown it on a big ticket purchase. There is no reason that banks cannot lend to someone in their 70s but they are seeking assurances from the borrower that they will be working until the loan ends
Proving Your Income
Problems can arise when taking a mortgage beyond normal retirement age. Lenders will then start asking about levels of income after retirement to demonstrate that the mortgage will remain affordable, and proving that income could be where the difficulty lies.
In all circumstances it pays for older borrowers to research thoroughly all of the options, shop around with different lenders and know the type of mortgage you need and what the best way of finding it is that will suit you and your family for the future.